OF  THE 

UNIVERSITY 

OF 


SOCIAL  INSURANCE 


WITH    SPECIAL   REFERENCE 
TO   AMERICAN   CONDITIONS 


BY 


I.  M.  RUBINOW 

Chief  Statistician,  Ocean  Accident  &  Guarantee  Corporation  ;  Lecturer 

on  Social  Insurance,  New  York  School  of  Philanthropy  ; 

Former  Statistical  Expert,  United  States 

Bureau  of  Labor 


NEW   YORK 

HENRY  HOLT  AND  COMPANY 
1916 


COPYRIGHT,  1913, 

BY 
HENRY  HOLT  AND  COMPANY 


Published  November,  1913 


VVD-709/ 


PREFACE 

THIS  study  of  Social  Insurance  grew  out  of  a  course  of 
fifteen  lectures  given  at  the  New  York  School  of  Philan- 
thropy in  the  spring  of  1912;  but  the  material  has  been 
considerably  extended,  rewritten,  and  brought  up  to  date. 
It  is  believed  (though  perhaps  erroneously)  that  at  the 
time  the  course  was  the  first  American  University  course  to 
be  devoted  entirely  to  the  subject  of  Social  Insurance,  though 
the  subject  has  been  treated  recently  in  a  general  way  in 
connection  with  courses  on  "  Labor  Problems  "  or  "  Social 
Reform."  Since  ihen  courses  under  this  specific  title  have 
been  announced  at  several  of  the  more  important  American 
universities,  and  the  academic  interest  in  these  problems  is 
rapidly  growing  side  by  side  with  the  popular  movements  for 
accident  compensation,  widows'  pensions,  retirement  annu- 
ities, state  life  insurance,  and  so  on. 

The  neglect  of  this  most  important  branch  of  social  legis- 
lation by  the  American  economists,  which  was  very  forcibly 
brought  to  my  attention  some  ten  or  twelve  years  ago,  when, 
as  a  student  in  Professor  Seligman's  seminar,  I  first  became 
interested  in  the  subject,  is  fortunately  a  thing  of  the  past. 
In  all  the  movements  which  I  have  just  mentioned,  many 
university  professors  of  economics  and  social  science  are  most 
active,  and  the  list  of  doctoral  dissertations  in  preparation  in 
the  various  departments  of  Economics  and  Social  Science,  as 
recently  published,  for  the  first  time  shows  many  titles  de- 
voted to  this  fruitful  field. 

It  is  hoped  that  this  work  will  be  found  useful  not  only  to 
college  professors  and  college  students  as  a  convenient  intro- 
duction to  further  more  profound  studies,  but  that  it  may 
prove  of  interest  to  the  public  at  large,  whose  opinions  and 
wishes  must  in  the  final  analysis  influence  all  coming  legis- 
lation. 

In  regard  to  one  problem — that  of  accident  compensation — 
a  good  deal  of  educational  work  has  been  done  within  recent 
years  by  the  numerous  state  commissions,  and  by  the  still  more 

iii 

M595157 


iv  PREFACE 

numerous  writers  who  popularized  the  results  of  their  work. 
But  outside  of  this  one  branch  of  social  insurance,  the  general 
level  of  popular  information  is  still  very  low.  Quite  recently 
some  demand  has  arisen  in  many  states  for  the  creation  of 
governmental  commissions  for  the  investigation  of  the  whole 
field,  and  in  my  opinion  the  demand  is  a  justifiable  one. 
But  as  yet  even  this  demand  is  limited  to  social  workers, 
or  to  those  who  know  enough  of  social  insurance  to  want 
to  know  more.  To  judge  from  the  history  of  the  compensa- 
tion movement,  a  certain  amount  of  educational  and  propa- 
ganda writing  must  precede  the  creation  of  commissions. 

It  is  true  that  several  books  and  official  investigations  on 
this  subject  have  appeared  within  recent  years.  Not  only 
has  the  very  rapid  advance  of  social  insurance  measures  both 
in  Europe  and  in  the  United  States  within  the  last  three 
years  made  most  of  the  publications  obsolete  to  that  extent 
but  most  of  the  literature  has  taken  one  of  two  forms :  either 
detailed  and  painstaking  presentation  of  facts  (such  as  the 
voluminous  Twenty-fourth  Report  of  the  United  States  Com- 
missioner of  Labor,  extending  over  3,000  pages),  or  popular 
arguments  which  try  to  make  a  case  but  fail  to  convey  any 
substantial  information  as  to  methods  in  use  or  results  already 
accomplished.  It  has  been  my  object  to  steer  a  middle  course, 
and  to  give  within  the  compass  of  one  book, — not  too  large 
for  general  use,— both  the  main  facts  as  to  the  development 
of  various  forms  of  social  insurance  up  to  date,  and  also  the 
social  theories  underlying  it  and  the  main  problems  arising 
out  of  the  movement.  Many  inquiries  from  students,  social 
workers,  public  men,  and  popular  writers  convinced  me  that 
this  was  the  type  of  book  most  needed  just  at  this  time. 

In  addition,  I  may  perhaps  venture  to  claim  for  my  effort 
some  originality  of  treatment.  The  traditional  way  of  pre- 
senting this  subject,  in  privately  published  studies  as  well 
as  in  official  investigations,  in  American  as  well  as  European 
books,  is  by  geographic  divisions.  The  laws  and  institutions 
of  each  country  are  separately  treated.  While  this  facilitates 
the  handling  of  the  available  descriptive  and  statistical  ma- 
terial, it  forces  upon  the  reader  a  great  mass  of  uninteresting 
details,  and  fails  to  result  in — what,  from  the  point  of  view 
of  the  beginner,  is  the  most  important  feature — a  critical 
comparison  of  various  institutions  and  methods. 


PREFACE  v 

A  praiseworthy  effort  to  break  away  from  this  stereotyped 
method  of  studying  international  movements,  has  already 
been  made  by  Frankel  and  Dawson  in  Workingmen's  Insur- 
ance in  Europe.  While  the  larger  part  of  the  book  is  still 
devoted  to  separate  statements  of  conditions  in  individual 
countries,  the  most  interesting  chapters  are  those  which  handle 
general  problems.  In  this  study  the  treatment  is  entirely  by 
topics  instead  of  countries,  and  because  of  this  method  of 
treatment  a  great  many  questions  seem  to  find  a  spontaneous 
answer. 

It  goes  without  saying  that  the  book  is  primarily  a  sum- 
mary, not  an  original  investigation.  The  field  is  so  tre- 
mendously large  that  there  are  hundreds  of  problems,  in- 
vestigation of  which  would  require  books  of  equal  size. 
Nevertheless,  it  is  not  altogether  a  compilation  of  secondary 
material  collected  by  others.  Outside  of  a  deep  uninterrupted 
interest  in  the  subject  for  over  ten  years,  I  was  fortunate 
enough  to  have  had  the  exceptional  opportunity  of  devoting 
my  entire  time  for  three  years  to  the  preparation  of  the  Re- 
port of  the  United  States  Commissioner  of  Labor,  already 
referred  to,  on  Workmen's  Insurance  and  Compensation 
Systems  in  Europe.  Of  the  eleven  chapters  of  that  report 
(devoted  to  eleven  countries),  all  of  the  three  chapters  on 
Italy,  Russia,  and  Spain,  and  about  one-half  of  that  on  France 
were  prepared  by  me;  and  those  on  Belgium  and  the  three 
Scandinavian  countries  were  prepared  under  my  direction  and 
editorial  revision.  While  the  remaining  three  chapters  on  the 
most  important  countries,  Austria,  Germany,  and  Great 
Britain,  were  prepared  by  my  colleagues  and  good  friends,  Dr. 
H.  J.  Harris  and  Mr.  L.  D.  Clark — the  problems  and  materials 
of  the  entire  report  were  so  fully  discussed  by  all  the  three 
co-workers,  that  each  one  may  claim  first-hand  knowledge  of 
them.  I  felt  at  liberty,  therefore,  to  draw  freely  from  the 
voluminous  report,  without  repeatedly  quoting  the  source, 
and  without  the  fear  of  being  accused  of  literary  plagiarism. 

This  may  also  explain  the  paucity  of  references  to  original 
sources  which  were  carefully  studied  and  digested  in  con- 
nection with  the  preparation  of  the  larger  report. 

The  exacting  student  will  perhaps  object  to  this  absence 
of  footnotes  and  a  bibliography.  It  was  my  intention  to  pre- 
pare such  a  bibliography,  but  it  had  to  be  given  up  for 


vi  PREFACE 

considerations  of  both,  time  and  space.  The  literature  on  the 
subject,  especially  in  foreign  languages,  is  enormous,  and  in 
view  of  the  rapid  additions  to  existing  legislation  in  all  indus- 
trial countries,  calling  forth  a  good  deal  of  argumentative, 
controversial,  and  explanatory  writing,  is  growing  at  a  tre- 
mendous rate.  Under  the  circumstances  a  careful  and  fairly 
comprehensive  bibliography  would  require  a  volume.  On  the 
other  hand,  small  bibliographies  may  be  obtained  without  any 
great  difficulties.  It  seemed  preferable,  therefore,  to  give  up 
the  effort  to  prepare  a  bibliography,  instead  of  which  a  very 
brief  bibliographical  note  has  been  appended,  where  the  most 
important  sources  for  further  study  are  briefly  enumerated 
for  the  benefit  of  those  who  might  desire  to  pursue  the  sub- 
ject. In  fact,  I  believe  that  in  dealing  with  any  large 
subject  within  the  compass  of  one  book,  a  bibliography  of 
bibliographies  is  perhaps  all  that  should  be  attempted. 

And  finally,  while  the  book  is  admittedly  a  brief  summary 
of  things  as  they  are,  I  felt  no  obligation  to  refrain  from 
stating  my  own  preferences  in  the  premises.  It  is  futile  to 
try  for  absolute  impartiality  in  dealing  with  matters  of 
social  policy.  It  cannot  be  achieved  without  paying  the  heavy 
price  of  colorlessness  and  dullness.  On  many  problems  con- 
nected with  the  subject  of  social  insurance  I  plead  guilty  to 
very  definite  views.  I  would  not  miss  the  opportunity  of 
doing  this  bit  of  propaganda,  which  I  consider  no  less  im- 
portant than  the  effort  to  impart  accurate  information. 

I  am  under  great  obligations  to  Professor  Henry  R.  Seager 
and  Professor  Samuel  McCune  Lindsay  for  furnishing  me  the 
opportunity  to  deliver  the  course  of  lectures  at  the  New  York 
School  of  Philanthropy,  without  which  stimulus  I  doubt 
whether  I  would  have  commanded  sufficient  energy  to  snatch 
from  a  busy  New  York  existence  the  time  necessary  for  the 
preparation  of  this  work. 

I.  M.  RUBINOW. 

NEW  YORK  CITY, 
August,  1913. 


CONTENTS 

PART  1 
INTRODUCTORY 

CHAPTER  PAGE 

I.     THE  CONCEPT  OF  SOCIAL  INSUBANCE 3 

II.     DEVELOPMENT  OF  SOCIAL  INSURANCE  IN  EUROPE     .       .  13 

III.  THE  NEED  OF  SOCIAL  INSURANCE  IN  THE  UNITED  STATES  28 

PART  II 
INSURANCE  AGAINST  INDUSTRIAL  ACCIDENTS 

IV.  INDUSTRIAL  ACCIDENTS     ........  49 

V.     THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS       ....  69 

VI.     THE  INDICTMENT  OF  EMPLOYER'S  LIABILITY       ...  86 

VII.     CASE  FOB   COMPENSATION 100 

VIII.     THE  ELEMENTS  OF  A  NORMAL  COMPENSATION  LAW  .       .  108 

IX.     ORGANIZATION  OF  ACCIDENT  INSURANCE     .       .       .       .134 

X.     THE  AMERICAN  COMPENSATION  MOVEMENT        .       .       .  155 

XI.     AMERICAN  COMPENSATION  LEGISLATION,  1908-1913   .       .  169 

XII.     CRITICISM  OF  AMERICAN  COMPENSATION  LAWS  .       .       .188 

PART  III 
INSURANCE  AGAINST  SICKNESS 

XIII.  ECONOMIC  AND  INDUSTRIAL  ASPECTS  OF  DISEASE     .       .  205 

XIV.  VOLUNTARY  SICKNESS  INSURANCE  IN  EUROPE  .       .       .  224 
XV.     SUBSIDIZED  SYSTEMS  OF  SICKNESS  INSURANCE        .       .  240 

XVI.     COMPULSORY    SICK-INSURANCE 248 

XVII.     COMPULSORY   SICK-INSURANCE. — BENEFIT  FEATURES       .  264 
XVIII.     BEGINNINGS   OF   SICKNESS   INSURANCE   IN   THE  UNITED 

STATES 281 

vii 


vin 


CONTENTS 


PART  IV 
INSURANCE  AGAINST  OLD  AGE,  INVALIDITY,  AND  DEATH 

CHAPTER  PAGE 

XIX.  THE  OLD  MAN'S  PROBLEM  IN  MODERN  INDUSTRY     .       .301 

XX.  VOLUNTARY  PRIVATE  OLD- AGE  INSURANCE  IN  EUROPE     .     318 

XXI.  SUBSIDIZED  VOLUNTARY  STATE  INSURANCE  AGAINST  OLD 

AGE 329 

XXII.  COMPULSORY  OLD- AGE  INSURANCE 345 

XXIII.  NON- CONTRIBUTORY  OLD-AGE  PENSIONS       ....     367 

XXIV.  THE  PENSION  MOVEMENT  IN  THE  UNITED  STATES  .       .389 
XXV.  LIFE     INSURANCE     FOR     WORKMEN. — PENSIONS     FOB 

WIDOWS  AND  ORPHANS  .  413 


PART  V 
INSURANCE  AGAINST  UNEMPLOYMENT 

XXVI.     THE  PROBLEM  OF  UNEMPLOYMENT 441 

XXVII.     SUBSIDIZED  UNEMPLOYMENT  INSURANCE     ....  456 

XXVIII.     BEGINNINGS  OF  COMPULSORY  UNEMPLOYMENT  INSURANCE  473 

XXIX.     THE  SOCIAL  IMPORT  OF  SOCIAL  INSURANCE. — A  SUMMARY  480 

BIBLIOGRAPHICAL  NOTE 503 

INDEX  507 


PART  I 
INTRODUCTORY 


CHAPTER  I 
THE  CONCEPT  OF  SOCIAL  INSURANCE 

INSURANCE,  the  Encyclopedia  Britannica  says,  "  is  a  pro- 
vision made  by  a  group  of  persons,  each  singly  in  danger  of 
some  loss,  the  incidence  of  which  cannot  be  foreseen,  that  when 
such  loss  shall  occur  to  any  of  them,  it  shall  be  distributed  over 
the  whole  group." 

All  insurance,  therefore,  is  essentially  a  social  function. 
Why,  then,  this  emphasis  upon  '  *  social  insurance  ' '  and  what 
features  are  necessary  to  distinguish  it  from  other  forms  ?  The 
historical  origin  of  the  term  within  rather  recent  times  from 
the  older  one  "  workingmen's  insurance,"  is  sufficiently  sig- 
nificant. It  emphasizes  the  fact  that  social  insurance  is  the 
policy  of  organized  society  to  furnish  that  protection  to  one 
part  of  the  population,  which  some  other  part  may  need  less, 
or,  if  needing,  is  able  to  purchase  voluntarily  through  private 
insurance.  That  originally  only  the  wage-workers  were  con- 
sidered entitled  to  the  protection  of  this  policy,  and  that  within 
recent  times  the  sphere  of  this  policy  in  several  European  coun- 
tries was  extended  to  include  other  social  classes,  and  "  Ar- 
beiterversicherung  "  thus  became  "  Soziale  Versicherung, "  is 
a  matter  of  detail  and  not  of  principle.  Moreover,  it  still 
remains  true  that  Soziale  Versicherung  is  primarily,  even  over- 
whelmingly, Arbeiterversicherung. 

The  term ' '  social  insurance  "  is  as  yet  very  little  understood 
by  the  vast  majority  of  English-speaking  nations.  The  first 
necessary  step,  therefore,  is  not  so  much  a  technical  definition, 
as  a  description,  or  rather  circumscription  of  the  term,  and  the 
distinction  between  social  and  ordinary  commercial  insurance 
may  be  best  emphasized  by  first  indicating  the  characteristics 
common  to  both. 

All  insurance  is  a  substitution  of  social,  co-operative  pro- 
vision for  individual  provision.  Technically,  this  substitution 
of  social  effort  for  individual  effort,  is  known  as  the  theory 
of  distribution  of  losses  and  the  subsequent  elimination  of  risk. 

3 


4  SOCIAL  INSURANCE 

Highly  technical  as  is  the  organization  of  this  function  of 
distribution  in  practice,  its  theory  is  singularly  lucid  and 
simple. 

Perhaps  it  is  best  to  illustrate  this  principle  of  distribution 
of  loss  from  the  practice  of  some  form  of  property  insur- 
ance, such  as  fire  insurance.  Let  us  assume  that  we  all  live 
in  houses  of  uniform  construction,  in  a  uniform  locality, 
and,  therefore,  equally  subject  to  loss  by  fire.  Of  course, 
none  of  us  thinks  that  his  house  is  the  next  to  go  up  in 
flames  and  smoke.  Experience  has  shown  that  a  certain 
number  of  such  houses  will  be  lost  through  fire  year  in, 
year  out,  the  number  varying  from  year  to  year,  but  aver- 
aging, say,  about  ten  houses  out  of  ten  thousand  each  year. 
With  a  value  of  $10,000  for  each  house,  or  $100,000,000  for  ten 
thousand  houses,  according  to  our  assumption,  the  loss  on  all 
the  houses  will  average  about  $100,000  per  year,  or  $10  per 
house.  It  will  cost,  therefore,  only  $10  for  each  of  us  to  be 
insured  against  the  possibility  of  losing  the  entire  value  of  the 
house  by  fire  (not  counting  the  expenses  of  administration  of 
the  insurance),  and  ordinary  foresight  will  prefer  the  sure  loss 
of  $10  to  a  possible  loss  of  $10,000,  even  if  the  chance  is  one 
in  a  thousand.  As  a  matter  of  fact,  whoever  owns  property 
is  usually  willing  to  pay  a  great  deal  more  than  his  exact  pro- 
portionate share  of  the  common  loss, — for  in  obtaining  insur- 
ance he  pays  not  only  that  share, — what  in  technical  language 
of  insurance  is  known  as  the  pure  premium, — but  also  enough 
to  cover  the  cost  of  the  conduct  of  the  insurance  business,  and 
a  fair  profit  to  the  insurance  undertaking. 

This  elementary  principle  must  necessarily  underlie  all  ex- 
isting forms  of  insurance.  There  is  an  individual  advantage  in 
substituting  a  small  definite  money  loss  for  the  possibility  of 
a  very  large  financial  loss,  there  is  an  evident  gain  in  the 
freedom  from  anxiety  concerning  the  possibility  of  the  larger 
loss,  which  is  purchased  for  that  price  of  the  premium.  It  has 
sometimes  been  argued,  however,  that  while  there  is  the  indi- 
vidual gain,  socially  insurance  brings  no  such  gain,  for  the 
amount  of  total  loss  is  not  decreased,  and  that  inasmuch  as  in 
actual  practice  the  cost  of  combined  insurance  is  much  higher 
than  the  actual  loss,  socially  insurance  represents  a  waste; 
furthermore,  that  inasmuch  as  insurance  gives  the  much  de- 
sired sense  of  security,  it  actually  decreases  the  amount  of  per- 


THE  CONCEPT  OF  SOCIAL  INSURANCE  5 

sonal  watchfulness,  and  in  the  long  analysis  is  a  factor  increas- 
ing the  total  loss  from  fire. 

Admitting  for  argument's  sake,  both  these  factors,  is  the 
final  result  of  an  insurance  system  a  loss  or  a  gain  to  society  ? 
The  question  is  readily  answered  by  the  simple  fact  that  only 
the  most  careless,  most  shiftless  landowner  is  willing  to  remain 
without  insurance.  But  a  deeper  insight  in  the  theory  fur- 
nishes a  ready  corroboration  of  this  practice.  In  dollars  and 
cents,  insurance  must  actually  cost  more  than  the  total  loss 
amounts  to.  But  can  human  happiness  or  misery  be  measured 
so  easily  by  the  simple  addition  of  dollars  and  cents?  From 
a  business  point  of  view,  the  greatest  advantage  of  insurance 
is  in  destroying  the  sense  of  personal  insecurity  and  thus  in- 
creasing the  worth  of  individual  wealth.  Thus  the  value  of  a 
$10,000  house  would  be  a  good  deal  less  than  $10,000,  if,  for 
some  reason,  insurance  companies  would  refuse  to  insure  it.  But 
from  a  broad  social  point  of  view,  the  advantages  of  a  system  of 
distribution  of  loss  must  be  reckoned  in  an  entirely  different 
way.  On  one  hand,  the  sudden  destruction  of  property  insured 
must  cause  a  great  deal  of  human  suffering  and  distress.  On 
the  other,  the  payment  of  a  small  insurance  premium  may  cause 
at  most  a  small  amount  of  discomfort,  the  effect  of  which  in 
each  individual  case  is  hardly  perceptible;  and  which,  even 
if  multiplied  ten  thousand  times,  still  weighs  very  much  less 
on  the  scale  of  human  happiness  than  ten  cases  of  actual 
distress.  It  is  in  this  consideration  that  lies  the  true  distinction 
between  the  purely  financial  and  the  social  basis  of  the  theory 
of  distribution  of  loss. 

What  is  true  of  fire  insurance  is  equally  true  of  other  forms 
of  property  insurance  with  which  the  modern  world  is  fa- 
miliar. And  just  as  evidently  dangers  to  the  person  are  equally 
pregnant  of  possibility  of  financial  loss,  and  these  may  be 
guarded  against  by  proper  systems  of  insurance,  of  which  life 
insurance  is  the  most  popular  example.  The  distress  that  might 
follow  the  death  or  disability  of  the  family 's  provider  may  be 
prevented  by  a  payment  of  a  corresponding  premium,  and  in 
the  United  States  at  least,  in  the  vast  majority  of  the  middle- 
class  families,  this  premium  is  cheerfully  paid. 

Thus,  the  social  advantages  of  distribution  of  loss  are  equally 
applicable  to  all  forms  of  insurance,  to  commercial  insurance  as 
well  as  social  insurance;  and  having  learned  the  underlying 


6  SOCIAL  INSURANCE 

basis  common  to  both,  we  are  better  prepared  to  study  the 
essential  differences,  to  define,  as  least  in  a  general  way,  the 
proper  domain  of  social  insurance,  and  to  justify  the  study 
of  the  latter,  not  at  all  as  a  branch  of  the  insurance  business, 
but  as  an  essential  part  of  social  policy.  For  the  property- 
owning  classes  the  payment  of  the  small  insurance  premium 
is  at  worst  a  matter  of  slight  discomfort  only,  or  perhaps  not 
noticed  at  all;  as  a  result  this  slight  premium  is  cheerfully 
paid.  It  may  have  occurred  to  many  of  the  readers,  especially 
those  who  have  some  personal  knowledge  of  the  life  of  the  vast 
army  of  wage-workers  and  people  in  similar  economic  condi- 
tions,— that  to  them  the  payment  of  an  insurance  premium,  no 
matter  how  small,  is  not  a  matter  of  slight  discomfort,  but  a 
very  serious  financial  problem.  The  situation  is  evidently  quite 
different  as  between  insurance  of  property,  when  a  certain  very 
small  loss  guarantees  the  possession  of  a  very  large  amount  of 
property,  and  insurance  of  the  continuity  of  earning  capacity 
which  may  be  the  only  possession  of  the  individual.  It  will 
be  readily  admitted  that  our  standard  of  wages  does  not  in 
the  majority  of  cases  yield  a  continuous  surplus.  In  fact, 
investigations  of  the  earnings  and  expenditures  of  wage- 
workers  in  all  countries  have  proven  beyond  doubt  that  an 
annual  surplus  is  a  very  unusual  phenomenon  in  the  life  of  the 
working  class;  the  earnings  at  best  are  only  large  enough  to 
cover  the  current  expenditures.  Under  such  conditions,  every 
expenditure  is  a  matter  of  serious  financial  importance  for  a 
wage-worker's  family,  as  the  satisfaction  of  every  new  want 
may  be  obtained  only  at  the  sacrifice  of  another  want,  per- 
haps equally  important  and  pressing. 

In  the  workingman  's  psychology,  therefore,  insurance  of  any 
kind  is  never  a  matter  of  choice  between  a  danger  and  a  slight 
discomfort,  when  the  arguments  for  insurance  are  so  over- 
whelming that  they  can  be  trusted  of  themselves  to  produce  the 
necessary  results.  Eather  is  it  a  selection  between  a  possible 
deprivation  in  the  future  and  a  certain  serious  loss  in  the 
present  which  the  payment  of  the  premium  requires.  While 
this  represents  a  serious  difficulty  on  one  hand,  another  still 
more  serious  is  the  large  variety  of  economic  risks  to  which 
the  modern  wage-earners  are  exposed,  thus  multiplying  the 
number  of  insurance  premiums  which  they  would  have  to  pay 
to  obtain  the  full  benefit  of  the  advantages  of  loss  distribution. 


THE  CONCEPT  OF  SOCIAL  INSURANCE    7 

It  is  often  stated  as  a  truism  that  the  measure  of  security  of 
life  is  the  measure  of  the  progress  of  civilization.  That  might 
be  true  in  a  certain  physical  sense.  Epidemics  are  less  fre- 
quent. Wild  animals  have  been  destroyed  and  robber  barons 
do  not  infest  our  highways.  But,  economically  speaking,  there 
has  not  been  such  increase  in  the  security  of  obtaining  means 
of  livelihood  as  far  as  our  working  population  is  concerned. 

Modern  society  is  based  upon  a  system  of  free  labor.  Under 
such  system,  the  working  ability  of  the  wage-worker  is  his 
only  means  to  support,  and  then  only  if  it  finds  a  ready  market. 
Many  wage-workers  may  have  some  property,  but  of  capital, 
in  the  sense  of  revenue-bearing  property,  they  have  very  little 
or  none.  The  amount  of  property  saved,  if  readily  convertible 
into  units  of  universal  value — money  (which  is  an  exception 
rather  than  the  rule),  may  influence  the  period  of  waiting 
time  between  stoppage  of  earning  and  actual  distress ;  but  in 
the  vast  majority  of  cases,  interruption  of  the  wage-worker's 
income  soon  leads  to  serious  economical  distress. 

This  leads  up  to  the  question — what  are  the  usual  causes  of 
interruption  of  income  in  a  wage-worker's  family  ?  A  full  dis- 
cussion of  these  causes  of  poverty  in  a  wage-earning  com- 
munity, may  lead  beyond  the  proper  limits  of  the  subject- 
matter  of  this  study.  But  a  brief  statement  of  the  situation  is 
quite  necessary  at  this  point  for  the  purpose  of  a  logical  pre- 
sentation of  the  case  for  social  insurance.  There  have  been 
many  classifications  of  the  causes  of  poverty,  but  while  they 
often  differ  in  form  and  perhaps  in  distribution  of  the  em- 
phasis, substantially  they  all  are  in  agreement.  Poverty,  in 
its  narrowest  definition,  meaning  the  absence  of  the  bare  neces- 
sities of  life,  may  be  due  either  to  the  unwillingness  or  inability 
to  perform  remunerative  labor.  We  may  omit  for  the  present 
the  problem  of  the  unwillingness  to  perform  work,  the  problem 
of  the  hobo  and  tramp.  Whether  it  is  primarily  a  psychologi- 
cal, ethical,  or  sociological  problem,  whether  it  must  be  met  by 
educational  influences,  or  such  social  changes  as  will  modify 
character  through  outside  influences,  is  a  question  which  may 
be  answered  in  many  different  ways.  But  in  any  case  it  would 
require  an  exceedingly  optimistic  frame  of  mind  to  consider 
this  psychological  phenomenon  of  laziness  the  essential  cause 
of  misery  and  economic  want. 

In  the  vast  majority  of  cases,  the  cause  of  absence  of  in- 


8  SOCIAL  INSURANCE 

come  is  the  inability  to  perform  remunerative  work.  This 
factor  again  may  be  further  analyzed.  It  is  the  result  usually 
of  one  of  the  following  three  conditions : 

1.  Absence  of  a  worker  in  the  family. 

2.  Physical  inability  to  perform  labor,  either  because  of  ill- 

ness or  accidental  injury  or  chronic  invalidity,  or  the 
physical  deterioration  accompanying  old  age ;  or, 

3.  Finally,  inability  to  find  employment  because  of  lack  of 

adjustment  between  demand  and  supply  in  the  labor 
market. 

Sickness,  accidents,  invalidity,  premature  or  normal  old  age, 
premature  death,  and  finally  unemployment, — such  are  the 
economic  risks  which  stare  in  the  face  each  and  every  work- 
ingman.  Their  economic  consequences  are  very  much  more 
serious  in  his  case,  than  in  the  middle  classes  deriving  their 
income  from  property,  business,  or  profession,  where  the  con- 
tinuity of  income  is  not  so  closely  dependent  upon  continuity  of 
effort. 

Not  only  are  the  various  risks  more  numerous  and  more  seri- 
ous, but  they  are  also  more  frequent  in  the  case  of  the  work- 
man. Clearly,  then,  the  premiums  to  protect  against  such  pos- 
sible losses  upon  the  now  familiar  theory  of  distribution  of 
loss  must  be  very  much  higher,  while  the  source  from  which 
such  premiums  must  be  paid  is  very  much  more  limited.  Thus 
remaining  upon  the  strict  basis  of  actuarial  (or  insurance 
business)  principles,  the  premium  necessary  to  protect  all  these 
emergencies  is  so  high  that  the  working  class  as  a  whole  are 
either  unable  or  unwilling  to  meet  it.  A  point  is  arrived  at 
where  the  certainty  of  the  economic  cost  of  insurance  over- 
balances the  fear  of  the  danger  of  possible  loss,  and  insurance 
is  not  effected. 

But  why  necessarily  insurance  ?  the  question  may  arise.  To 
assume  that  insurance  is  the  only  proper  method  of  meeting 
these  possible  emergencies,  when  one  discusses  the  problem  in 
America,  would  be  to  beg  the  entire  question.  It  is  often 
argued  that,  inasmuch  as  all  these  emergencies  are  quite  com- 
mon and  frequent,  each  individual  family  must  take  the  neces- 
sary steps  to  be  prepared  for  them  through  the  instrumentality 
of  savings. 

No  student  of  economics  would  deny  the  educational,  char- 
acter-building value  of  thrift,  meaning  elimination  of  waste 


THE  CONCEPT  OF  SOCIAL  INSURANCE  9 

and  respect  for  the  proper  value  of  property,  which  in  the  last 
analysis  means  respect  for  the  results  of  human  effort.  But 
the  assertion  that,  in  the  case  of  the  wage-earning  class,  indi- 
vidual saving  may  solve  the  problem  of  poverty,  necessarily 
presupposes  the  existence  of  a  surplus  in  the  budget  of  the 
average  wage-earner's  family.  There  was  a  time  when  that 
assertion  could  be  glibly  made  for  lack  of  accurate  scientific 
material  to  contradict  it.  That  time  is  fortunately  gone.  A 
series  of  able  and  painstaking  investigations  both  of  the  actual 
and  normal  standards  of  living,  has  conclusively  shown  that, 
even  in  the  United  States,  a  very  large  proportion  of  the  wage- 
earners  have  an  income  which  is  insufficient  for  the  main- 
tenance of  a  normal  standard,  and  surely  have  no  surplus. 
Under  such  conditions  saving  for  all  possible  future  emergen- 
cies must  necessarily  mean  a  very  substantial  reduction  of  a 
standard  already  sub-normal.  In  so  far  as  there  is  a  material 
waste  in  the  wage-earner's  expenditures,  whether  due  to  igno- 
rance or  extravagance,  the  necessary  thing  is  evidently  to 
direct  the  current  of  expenditures  into  more  advantageous 
channels.  As  Mr.  J.  A.  Hobson  has  succinctly  stated,  in  reply 
to  the  assertion  that  wage-earners  could  save  if  they  would 
spend  less  on  drink  or  on  other  useless  or  injurious  objects, 
' '  if  such  improvements  in  expenditures  were  made,  other  ele- 
ments in  a  progressive  standard  of  comfort  have  a  prior  claim 
which  would  easily  absorb  the  savings. ' ' 1  But  the  fact  re- 
mains— that  excessive  thrift  may  do  positive  harm  in  reducing 
the  standard  of  life,  not  only  below  the  desirable  social 
standard,  but  even  below  the  physiological  standard.  Under 
such  conditions  thrift  may  become  a  positive  vice. 

Here,  then,  is  the  social  problem  underlying  the  need  of  in- 
surance of  the  wage-earning  millions.  Their  economic  con- 
dition is  precarious;  the  economic  dangers  threatening  them 
many ;  and  the  degree  of  risk  in  each  case  is  very  high.  In- 
dividual provision  is  insufficient,  social  provision  through  dis- 
tribution of  loss  is  necessary  but  costly,  often  much  too  costly. 

If  we  have  grasped  the  substance  of  these  principles,  we  are 
prepared  to  draw  the  line  between  commercial  and  social  in- 
surance, and  we  understand  the  main  purpose  and  functions  of 
social  insurance.  Both  forms  of  insurance  are  social  institu- 
tions. But  there  is  also  a  vast  difference,  easily  explained 
1  The  Sociological  Review,  Vol.  I,  1908,  p.  296. 


10  SOCIAL  INSURANCE 

by  the  differences  in  the  economic  status,  and,  therefore,  in 
the  psychological  attitude  towards  the  insurance  of  the  two 
social  groups  concerned. 

There  is  the  comparatively  small  class  of  large  and  small 
property-owners,  who  are  able  not  only  to  appreciate  all  the 
economic  advantages  of  insurance,  but  to  pay  for  them.  The 
full  cost  of  insurance,  including  the  proper  share  of  the  dis- 
tributed loss  (or  the  so-called  pure  premium),  and  the  cost  of 
administration,  solicitation,  and  the  insurer's  profit  (or  the 
so-called  loading) — the  cost  of  all  these  elements  constitutes  a 
premium,  the  burden  of  which  is  not  excessive.  It  does  not 
follow  that  society  has  no  interest  at  all  in  regulating  this  form 
of  insurance,  but  the  importance  of  this  regulation  is  not 
decisive  and  does  not  concern  us  here. 

But  there  is  the  very  much  larger  class  of  wage-earners  or 
persons  in  similar  economic  conditions,  whose  need  of  insurance 
is  very  much  greater,  because  the  hazards  are  many  and  grave, 
but  who  nevertheless  are  unable  to  meet  the  true  cost  of 
insurance  conducted  as  a  business.  To  provide  them  with  such 
insurance  or  some  equivalent  form  of  protection  has  become  the 
concern  of  the  modern  progressive  state,  and  this  is  properly 
the  field  of  social  insurance.  There  are  many  different  ways, 
or  perhaps  more  accurately,  different  degrees  of  assistance, 
which  society  or  the  state  can  furnish,  and  they  may  be  all 
considered  as  efforts  to  reduce  the  amount  of  premium  or  cost 
of  insurance  and  to  extend  its  application.  Thus  the  state 
may  begin  by  simply  providing  a  safe  insurance  organization, 
devoid  of  the  elements  of  profit.  This  alone  reduces  the 
premium,  for  profits  are  a  necessary  element  of  the  premium  of 
commercial  insurance.  It  may  take  the  next  step  and  assume 
part  or  the  entire  cost  of  administration  of  the  insurance  in- 
stitutions, and  thus  further  reduce  the  cost,  for  this  cost  is  a 
very  important  fact  in  "  loading  "  or  increasing  the  premium. 
It  may  take  still  one  more  step  and  directly  subsidize  insur- 
ance, thus  assuming  a  part  of  the  true  cost,  or  it  may  impose 
such  assumption  of  cost  upon  other  elements  of  society,  such 
as  the  employing  class,  or  it  may  further  assume  or  shift  the 
entire  cost  of  the  premium,  thus  virtually  granting  an  insur- 
ance without  payment  of  premium  by  the  insured,  as  is  the 
case  with  the  insurance  against  accidents  in  most  countries  and 
with  old-age  pensions  in  some.  And  it  may  finally  counteract 


THE  CONCEPT  OF  SOCIAL  INSURANCE         11 

the  unwillingness  of  the  working  class  to  pay  even  a  small 
subsidized  premium  by  making  insurance  compulsory.  All 
this  the  modern  state  may  and  does  do  to  develop  social  in- 
surance, to  furnish  protection  to  those  who  need  and  are  unable 
to  purchase  it  in  the  open  market. 

Of  course,  every  one  of  the  steps  enumerated  is  a  step  away 
from  the  true  scientific  principles  of  business  insurance,  which 
is  based  upon  distribution  of  loss  among  all  those  subject  to 
the  possibility  of  loss.  And,  of  course,  from  the  point  of 
view  of  actuarial  science,  all  these  steps  are  subject  to  severe 
criticism.  But  social  insurance  might  almost  be  defined  as  a 
form  of  insurance  which  cannot  live  up  to  the  exacting  laws 
of  insurance  science.  Then  again  it  may  and  has  been  decried 
as  rank  paternalism,  and  this  indictment  must  be  readily 
admitted.  For  social  insurance,  when  properly  developed,  is 
nothing  if  not  a  well-defined  effort  of  the  organized  state  to 
come  to  the  assistance  of  the  wage-earner  and  furnish  him 
something  he  individually  is  quite  unable  to  obtain  for  him- 
self. One  who  is  at  all  familiar  with  the  attitude  of  American 
economic  and  social  thought  of  all  but  very  recent  times,  to- 
ward such  active  state  interference  on  behalf  of  the  wage- 
working  class,  will  readily  see  what  a  vast  variety  of  objec- 
tions and  criticisms  it  must  raise.  The  reader  will  be  much 
better  prepared  to  meet  these  criticisms  or  admit  them,  to 
form  his  own  conclusions  concerning  the  merits  and  demerits 
of  social  insurance,  after  a  detailed  study  of  the  various 
branches  of  social  insurance,  and  must  avoid  the  temptation 
to  grapple  with  them  at  this  time. 

In  this  brief  exposition  of  the  general  aims  of  the  movement 
known  as  "  social  insurance,"  the  needs  of  the  working  class 
were  primarily  emphasized.  Undoubtedly  it  is  the  wage- 
working  class  which  has  mostly  felt  the  new  economic  dan- 
gers of  the  social  system  based  upon  purchase  of  labor,  the 
insecurity  of  means  of  existence,  and  the  pressure  of  the  cost 
of  living  upon  the  earnings.  But  poverty  is  not  altogether 
limited  to  this  class.  The  lower  middle  class  has  felt  the  same 
conditions  quite  acutely,  both  because  there  is  a  constant  influx 
from  the  middle  class  to  the  wage-working  class,  and  because 
its  own  means  of  existence  are  often  insecure.  Thus  the  very 
large  and  rapidly  growing  group  of  salaried  employees,  and 
even  the  groups  of  small  independent  artisans,  small  property- 


12  SOCIAL  INSURANCE 

owners,  a  very  large  proportion  of  the  farmers,  and  even  the 
small  employers  of  labor  are  not  at  all  free  from  the  dangers 
of  discontinuance  of  income  and  consequent  poverty  or  even 
pauperism.  Thus  modern  social  insurance  has  gradually  taken 
in  many  of  these  economic  groups.  And  in  so  far  the  term 
social  insurance  is  rather  more  extensive  than  the  more  modest 
and  limited  term  "  workmen's  insurance/' 

On  the  other  hand,  in  some  respects  workmen 's  insurance  is 
more  extensive  even  than  social  insurance.  For  there  are 
many  forms  of  insurance  of  workmen  which  are  not  the  result 
of  state  activity,  or  of  a  definite  social  policy,  but  commercial 
or  private,  and  though  these  forms  are  undoubtedly  more 
primitive  and  less  effective,  their  study  is  very  important 
both  for  comparative  purposes,  and  in  order  to  understand  the 
growth  of  the  social  policy  of  insurance.  In  the  following 
chapters,  therefore,  the  subject  will  be  considered  in  its 
widest  scope,  so  as  to  include  the  most  comprehensive  defini- 
tions of  both  social  insurance  and  workmen 's  insurance.  Espe- 
cially will  it  be  necessary  in  treating  of  conditions  in  the  United 
States,  which  has  many  significant  beginnings  of  workman's 
insurance,  though  social  insurance  as  a  result  of  a  definite  social 
policy  is  as  yet  scarcely  known. 


CHAPTER  II 
DEVELOPMENT  OF  SOCIAL  INSURANCE  IN  EUROPE 

IT  is  quite  customary,  especially  among  popular  writers  on 
the  subject,  to  credit  the  brilliant  mind  of  the  Iron  Chancellor 
of  the  German  Empire,  Bismarck,  with  the  origin  of  the  whole 
magnificent  structure  of  social  insurance;  and  in  a  certain 
superficial,  matter-of-fact  sort  of  way,  some  arguments  may  be 
brought  forward  in  support  of  this  view.  But  even  a  hasty 
study  of  the  earlier  efforts  at  social  and  workingmen's  insur- 
ance in  Germany  and  France  and  other  countries  shows  how 
very  little  historical  insight  such  a  view  conveys.  There  is  no 
doubt  that  the  modern  conception  of  social  insurance — as  a 
system  carrying  with  it  compulsion,  state  subsidies,  and  strict 
state  supervision  and  control — has  reached  its  highest  develop- 
ment in  modern  Germany,  so  that  any  system  embodying,  to 
any  large  degree,  all  these  three  elements,  may  be  described 
as  the  German  system.  But  even  preceding  the  German  bills 
of  1881  and  acts  of  1883  and  1884,  numerous  acts  were  passed 
by  many  German,  as  well  as  many  other  European  states, 
which  embodied  some  or  all  of  the  three  leading  principles  of 
this  German  system.  No  one  human  brain  was  ever  big  enough 
to  create  out  of  itself  a  social  institution  of  such  tremendous 
import.  Modern  historical  science  has  long  ceased  to  seek  the 
explanation  of  growth  of  any  social  institution  in  the  secrets  of 
the  workings  of  any  one  individual  mind.  It  may  be  admitted 
that  it  was  Bismarck  who  contributed  to  the  history  of  Social 
Insurance  the  first  application  of  State  Compulsion  on  a  large 
national  scale.  But  he  did  not  "  invent  "  the  principle  of 
workmen's  insurance,  nor  that  of  state  insurance,  nor  that  of 
compulsion.  In  the  decade  prior  to  the  introduction  of  the  com- 
pulsory insurance  system,  there  existed  in  Germany  a  multi- 
tude of  organizations,  part  of  them  very  old  and  part  new,  some 
compulsory,  some  voluntary,  some  local,  some  national,  some 
mutual  and  based  on  other  plans;  some  of  them  were  con- 
nected with  especial  establishments,  such  as  special  mines,  rail- 

13 


14  SOCIAL  INSURANCE 

ways,  etc.,  some  were  connected  with  trade  unions;  many  of 
them  were  connected  with  guilds.  In  other  words,  there  were 
already  existing  all  the  elements  out  of  which,  with  the  unify- 
ing power  of  a  large  state,  the  system  of  national  compulsory 
insurance  could  easily  be  built. 

It  would  require  very  painstaking  scientific  investigation  to 
determine  the  origin  of  the  idea  of  workman's  or  social  insur- 
ance, for  the  beginnings  may  be  traced  to  the  hoary  antiquity 
of  the  twelfth  century.  Manifestly,  this  historical  phase  of 
the  subject,  important  as  it  is  from  an  academic  point  of  view, 
can  hardly  be  touched  upon  here. 

But  it  may  be  pointed  out  that  these  origins  are  to  be  found 
almost  simultaneously  with  the  origin  of  the  wage-working 
class,  or  even  preceding  it,  with  the  union  of  medieval  artisans ; 
that  they  are  to  be  found  in  efforts  at  mutual  aid,  which,  after 
all,  is  only  an  ethical  expression  of  the  great  insurance  prin- 
ciple of  distribution  of  loss.  Out  of  these  early  efforts  arose 
the  many  well-organized  sick-benefit  societies,  which  Bismarck 
found  ready  to  include  in  his  state  insurance  scheme,  for  the 
danger  of  sickness  was  felt  by  the  workmen  long  before  the 
technical  development  of  industry  made  the  danger  of  indus- 
trial accidents  a  serious  one. 

In  such  industries  which  were  inherently  dangerous,  as  in 
mining  and  shipping,  relief  in  case  of  accident  early  became 
a  function  of  these  benefit  societies,  and  many  laws  in  Ger- 
many, as  well  as  in  other  countries,  were  enacted  which  tended 
to  shift  part  of  this  burden  upon  the  employer  or  industry. 
Again  in  such  industries  where  the  exhausting  nature  of  the 
work  made  premature  old  age  (or  invalidity)  a  common 
feature,  old-age  benefits  were  frequently  assumed — as,  for 
instance,  in  many  miners'  brotherhoods  or  funds.  And  on 
the  other  hand,  during  the  seventies  of  the  last  century,  sev- 
eral of  the  German  states  evolved  out  of  their  system  of  poor 
relief,  primitive  systems  of  compulsory  insurance  against  sick- 
ness. 

In  short,  the  working  class  showed  in  many  ways  its  appre- 
ciation of  the  necessity  for  organized  relief,  and  its  willingness 
to  contribute  to  it,  while  the  state  was  making  the  first  steps 
in  the  direction  of  participating  in  such  relief.  In  a  large 
measure  the  same  conditions  obtained  in  other  industrial  coun- 
tries of  Europe  as  well. 


SOCIAL  INSURANCE  IN  EUROPE  15 

For  the  reasons  why  Germany  was  the  first  to  undertake 
social  insurance  as  a  broad  national  program,  one  must  look 
to  the  entire  history  of  Germany  during  the  nineteenth  cen- 
^L  tury.  As  was  pointed  out  by  John  Graham  Brooks  in  his 
profound  study  of  the  German  system,  at  least  three  separate 
reasons  may  be  given  to  explain  the  fast  development  in  Ger- 
many, three  reasons  closely  connected.  One  was  that  on  the 
continent,  Germany,  during  the  second  half  of  the  nineteenth 
century,  was  the  country  of  the  greatest  industrial  growth ;  the 
second  was  the  German  conception  of  the  state  as  developed  by 
German  philosophers  like  Fichte,  who  wrote  a  hundred  years 
ago,  and  the  German  economists  like  Wagner  and  Schaeffle, 
who  never  fell  under  the  influence  of  the  laissez-faire  policy 
of  the  classical  English  economists:  and  last  but  not  least, 
there  was  the  rapid  development  of  the  labor  movement  under 
Socialist  banners  of  various  shadings.  Dr.  Schaeffle,  the  state 
socialist,  elaborated  a  program  of  social  insurance  as  early  as 
1867.  Lassalle  openly  advocated  that  the  state  come  to  the 
assistance  of  the  working  class.  The  great  Karl  Marx  had  no 
patience  with  the  negative  attitude  of  French  socialists  and 
anarchists  to  the  state. 

The  direct  history  of  social  insurance,  as  it  is  understood, 
begins  at  about  1878,  when  the  preliminary  steps  preparatory 
to  the  introduction  of  bills  into  the  Reichstag  were  taken. 
Sickness  and  accidents  were  the  two  problems  with  which  it 
was  decided  to  deal  at  the  beginning,  and  of  these  two  the 
problem  of  accidents  was  considered  as  the  more  pressing,  be- 
cause sickness  was,  to  a  great  extent,  provided  for  by  private 
voluntary  institutions.  In  January,  1881,  the  first  accident 
insurance  bill  was  introduced  but  failed  of  passage. 

The  famous  message  of  the  Emperor  to  the  Reichstag  re- 
convened on  November  17,  1881,  announced  that  accident  and 
sickness  insurance  bills  would  be  introduced,  but  that  other 
problems  such  as  that  of  old  age  and  invalidity  would  also  be 
considered  later.  It  was  for  considerations  of  minor  impor- 
tance that  the  sickness  bill  became  a  law  first,  in  1883,  and  the 
accident  bill  in  the  following  year.  The  era  of  real  state 
social  insurance  had  come  into  existence. 

A  chronology  of  social  insurance  acts  in  Europe  would 
show  how  rapid  was  the  spread  of  the  principle  in  parts  or 
in  its  entirety  to  other  countries.  But  what  a  bare  chronology 


16  SOCIAL  INSURANCE 

could  not  disclose  is  the  opposition  that  was  created  in  other 
countries  to  the  German  thought.  At  the  first  international 
congress  for  the  consideration  of  the  problem  of  industrial 
accidents  which  was  held  in  Paris  in  1889,  that  is  five  or  six 
years  after  the  German  system  was  established,  the  predominat- 
ing tone  was  that  of  opposition  to  the  German  idea.  And 
yet  this  congress,  which  soon  acquired  permanent  organiza- 
tion and  has  met  since  every  two  or  three  years,  eventually 
became  one  of  the  strongest  factors  in  support  not  only  of  acci- 
dent, but  also  all  other  forms  of  social  insurance ;  and  a  study 
of  the  voluminous  proceedings  of  the  nine  or  ten  congresses 
held,  gives  one  almost  a  kinematographic  picture  of  the  gradual 
change  of  the  collective  European  mind  on  the  subject,  until  at 
present,  practically  since  the  Kome  Congress  of  1908,  there  is 
almost  a  unanimous  consensus  of  opinion,  not  only  in  favor  of 
the  most  extensive  development  of  all  these  forms,  but  also 
along  the  German  type  of  state  compulsion  and  control. 

There  have  been  many  different  efforts  at  a  logical  classifica- 
tion of  the  various  branches  of  social  insurance.  One  of  the 
most  recent,  and  perhaps  the  most  comprehensive,  is  that  given 
by  Professor  Alfred  Manes,1  and  is  based  upon  the  economic 
nature  of  the  emergency  provided  for,  rather  than  the  physical 
or  physiological  cause  of  the  disability. 

Social  insurance — and  this  is  in  the  widest  sense  of  the  word,  in- 
cluding even  optional  insurance — has  to  serve  as  protection  for  the 
following  cases  of  exigency : 

1.  When  there  is  temporary  impairment  of  the  capacity  for 
work,  and,  with  this,  of  the  earning  power,  whether  this  comes 
about  through  causes  relating  to  the  individual  (subjective  causes) 
or  through  material  conditions,  namely: 

(a)  Through  sickness   (sickness  insurance). 

(b)  Through  accident  (accident  insurance). 

(c)  Through  child-bearing  and  what  follows  it  (maternity  in- 

surance). 

(d)  Through  poor  conditions  of  the  labor  market  (unemploy- 

ment insurance). 

2.  When  there  is  permanent  impairment  of  this  working  and 
earning  power,  which  may  have  its  causes : 

(a)    In  the  after  effects  of  sickness  or  accidents    (invalidity 
insurance). 

1  "  The  Boundaries  Between  Private  and  Social  Insurance,"  The  Mar- 
ket World  and  Chronicle,  May  25th,  1912.  (Translated  from  Zeit- 
schrift  fur  die  Gesammte  Versicherungswissenschaft.) 


SOCIAL  INSURANCE  IN  EUROPE  17 

(b)  In  advanced  age  (old-age  insurance). 

This  permanent  incapacity  for  earning  may  be  either  partial 
or  total. 

3.  When  there  is  complete  destruction  of  the  personality — that 
is,  when  death  comes,  in  so  far  as  there  is  by  reason  of  death  a 
financial  loss  suffered: 

(a)  As  a  result  of  the  expenditures  for  the  burial  (burial  money 
insurance). 

(&)    For  the  surviving  (widow's  insurance). 

(c)  For  the  surviving  children  (insurance  of  orphans). 

Comprehensive  as  is  this  classification,  it  illustrates  well  the 
difficulty  of  all  classifications.  Not  only  are  important  forms 
of  insurable  financial  loss  omitted  (such  as,  for  instance,  the 
loss  sustained,  in  case  of  death,  by  the  dependents  other  than 
widow  and  children,  namely  by  parents  or  brothers  and  sis- 
ters), but  branches  of  insurance  closely  connected  in  actual 
life  are  here  found  separated.  For  many  historical  reasons, 
the  organizational  basis  of  insurance  has  been  rather  that  of 
cause  than  of  condition,  though  this  basis  has  not  been  carried 
out  very  consistently.  Thus  the  essential  subdivision  of  social 
insurance  has  been  mainly  into  the  following  branches :  Insur- 
ance against — 

1.  Industrial  accidents. 

2.  Sickness. 

3.  Old  age       1 

and  v  combined. 

4.  Invalidity    ) 

5.  Insurance  of  widows  and  orphans. 

6.  Unemployment  insurance. 

Several  newer  forms  of  insurance  are  not  mentioned  in  this 
briefer  classification,  because  they  are  usually  (though  not 
always)  combined  with  one  of  the  standard  branches.  Thus, 
non-industrial  accidents,  which  the  workingman  may  suffer 
in  the  same  degree  as  other  classes  of  society,  are  usually 
handled  by  the  organization  of  sickness  insurance,  though  there 
is  now  at  least  one  example  of  special  provision  for  this 
emergency  under  the  Swiss  law  of  1911.  Industrial  diseases, 
which  bear  an  equally  close  relation  to  the  problems  of  acci- 
dents and  of  diseases,  are  treated  in  most  countries  with  the 
latter,  but  in  some  with  the  former,  and  the  tendency  to  bring 
them  into  closer  connection  with  accident  insurance  is  quite 
pronounced  at  present.  Invalidity  and  death,  when  due  to  in- 


18  SOCIAL  INSURANCE 

dustrial  accidents,  are  taken  care  of  in  a  different  way  than 
when  resulting  from  ordinary  disease.  Maternity  insurance  is, 
for  purposes  of  administrative  convenience,  usually  treated 
as  a  part  of  the  problem  of  sickness,  though  one  country — 
Italy — presents  an  interesting  exception.  Funeral  insurance  is 
universally  treated  in  all  social  insurance  systems  with  either 
accident  or  sickness  insurance,  according  to  its  causation. 

The  reasons  for  these  combinations  and  variations  will  be 
discussed  in  the  respective  chapters.  But  the  analysis  given 
above  will  convey  at  the  very  beginning  the  necessary  general 
idea  of  the  comprehensive  nature  of  the  social  insurance  move- 
ment. 

The  greatest  results  were  achieved  in  the  domain  of  accident 
provision.  The  principles  of  industrial  accident  insurance  are 
somewhat  different  from  other  branches  of  social  insurance. 
With  very  few  minor  exceptions,  all  countries  agree  that  the 
entire  cost  of  compensation  for  industrial  accidents  must  fall 
upon  the  employer.  The  financial  responsibility  for  losses 
occasioned  by  industrial  accidents  is,  therefore,  transferred 
from  the  wage-workers  to  the  employers,  and  this  transfer — 
known  as  the  compensation  principle — is  the  essential  feature 
of  accident  insurance.  The  method  of  organization  of  in- 
surance, therefore,  becomes  a  matter  of  secondary  importance 
as  far  as  the  workingmen  are  concerned.  It  is  a  problem 
primarily  for  the  employer.  Compulsory  accident  insurance 
means  compulsion  of  the  employer  and  not  of  the  employee.  In 
a  good  many  countries,  therefore,  so-called  accident  compensa- 
tion laws  instead  of  accident  insurance  laws  were  adopted. 
But  in  one  of  the  two  forms  most  industrial  countries 
following  the  German  example  have  within  the  thirty  years 
adopted  laws  providing  for  wage-workers  injured  in  the 
course  of  their  employment,  until  early  in  1910  the  United 
States  remained  the  only  country  of  industrial  importance 
without  such  legislation.  The  order  in  which  the  various  coun- 
tries have  fallen  in  line  is  as  follows : 

First  Decade  (1880-1890) :  Germany,  1884;  Austria,  1887. 

Second  Decade  (1891-1900) :  Hungary,  1891 ;  Norway,  1894 ; 
Finland,  1895;  Great  Britain,  1897;  Denmark,  1898;  Italy, 
1898;  France,  1898;  Spain,  1900;  New  Zealand,  1900;  South 
Australia,  1900. 

Third   Decade    (1901-1910):    Netherlands,    1901;    Greece, 


SOCIAL  INSURANCE  IN  EUROPE  19 

1901 ;  Sweden,  1901 ;  West  Australia,  1902 ;  Luxemburg,  1902 ; 
British  Columbia,  1902;  Russia,  1903;  Belgium,  1903;  Cape 
of  Good  Hope,  1905;  Queensland,  1905;  Nuevo  Leon  (Mexico), 
1906 ;  Transvaal,  1907 ;  Alberta,  1908 ;  Bulgaria,  1908 ;  New- 
foundland, 1908;  United  States  (for  federal  employees  only), 
1908;  Quebec,  1909;  Servia,  1910;  Nova  Scotia,  1910;  Mani- 
toba, 1910. 

Fourth  Decade  (1911—):  Switzerland,  1911;  Peru,  1911; 
Roumania,  1912;  about  twenty-five  states  of  the  American 
Union,  1911-1913. 

In  many  of  these  countries,  perhaps  in  all  even,  the  influ- 
ence of  the  German  experience  was  particularly  strong,  as 
Germany  was  the  only  country  with  a  system  in  well- working 
order  when  the  earlier  of  these  laws  were  passed.  And  in  later 
years,  while  one  country  after  another  was  falling  into  line, 
Germany  not  only  remained  the  country  with  the  longest  ex- 
perience as  the  pioneer  in  the  movement,  but  with  characteristic 
German  thoroughness,  it  soon  was  best  equipped  with  the 
necessary  statistical  material  for  a  scientific  discussion  of  the 
problem.  The  effect  of  German  example  is  also  seen  in  the 
order  in  which  the  other  countries  followed. 

And  yet  when  summed  up  in  just  that  way,  quite  an  errone- 
ous impression  may  be  conveyed,  as  if  it  were  nothing  but  the 
German  influence  that  created  the  world  movement.  A  close 
investigation  of  the  history  of  these  enactments  does  more 
justice  to  these  countries.  In  France,  for  instance,  the  sub- 
ject was  agitated  continually  since  1880,  and  as  early  as  1888 
an  accident  compensation  law  passed  one  house  of  the  Parlia- 
ment, but  it  took  ten  more  years  before  the  law  was  enacted. 
Similarly  in  Italy,  where  the  law  passed  in  the  same  year  as  in 
France,  it  was  preceded  by  twenty  years  of  almost  continuous 
agitation ;  the  first  bills  having  been  introduced  in  the  Chamber 
of  Deputies  in  1879.  In  Sweden,  where  the  law  was  not 
enacted  until  1901,  a  compensation  bill  to  that  effect  was  in- 
troduced as  early  as  1884.  In  Norway,  where  compulsory 
accident  insurance  was  effected  in  1894,  obligations  to  fur- 
nish certain  relief  in  case  of  accidents  were  placed  upon  the 
employer  in  1881.  In  highly  industrialized  Belgium,  which, 
because  of  a  decidedly  reactionary  political  atmosphere,  was 
very  late  in  joining  the  international  movement  (1905),  bills 
were  introduced  as  early  as  1890.  Even  in  Imperial  Russia, 


20  SOCIAL  INSURANCE 

the  problem  was  discussed  as  early  as  1881,  and  an  official  bill 
was  presented  to  the  higher  authorities  in  1893. 

And  thus  the  story  runs  throughout  industrial  Europe. 
For  the  problem  of  accident  compensation  was  bound  to  arise 
in  each  and  every  country  almost  simultaneously  with  the  in- 
troduction of  a  highly  capitalized  industry.  In  each  and  every 
country  there  was  a  long  waiting  period,  which  was  a  period 
of  obstinate  struggle  between  the  various  elements  variously 
affected  by  the  proposal  to  transfer  the  burden  of  industrial 
accidents  from  employee  to  employer.  And  in  all  countries  the 
growing  labor  movement,  often  assisted  by  radical  reform 
movements,  soon  was  drawn  into  the  controversy.  In  each 
country  industry  pleaded  special  national  reasons  which  made 
the  proposal  inequitable  if  not  impossible.  It  introduces 
quite  a  humorous  element  into  the  study  of  its  history  to  trace 
in  all  countries  the  same  arguments  in  favor  as  well  as  against 
the  proposal. 

In  most  countries  the  original  acts  were  soon  followed  by 
later  enactments  amending  the  law.  In  these  amendments 
the  evolution  of  European  thought  may  be  traced.  There 
was  very  little  of  practical  experience  to  go  by  when  the 
earlier  bills  were  passed,  and  many  changes  in  administrative 
details  were  necessary.  Again,  most  countries,  not  even  ex- 
cluding Germany,  undertook  this  step  in  the  field  of  social 
legislation  with  a  good  deal  of  fear,  as  a  dangerous  experiment, 
and  tried  to  limit  it  to  certain  portions  of  the  industrial  popu- 
lation. Therefore  subsequent  acts  were  necessary  to  extend 
the  application  of  the  law  to  a  wider  and  wider  field.  Thus 
the  industrial  (manufacturing)  population  was  the  first  to 
benefit  because  of  the  greater  urgency  of  the  need,  and  agri- 
cultural, commercial,  and  other  employees  were  included  later. 
But  in  no  country  (except  Switzerland)  was  there  ever  a  step 
backward.  And  even  there  it  was  eventually  rectified. 

In  the  domain  of  sickness  insurance  the  history  of  victories 
achieved  is  perhaps  a  somewhat  more  modest  one.  Not  that  the 
problem  of  sickness  is  any  less  acute  than  that  of  industrial 
accidents.  But  perhaps  the  very  generality  of  the  risk  of 
sickness  has  created  a  great  many  relief  institutions  among  the 
wage-earners,  and,  therefore,  made  a  state  interference  seem 
to  be  less  imperative.  As  yet  the  German  example  of  a  state- 
wide, universal,  and  compulsory  system  of  sickness  insurance 


SOCIAL  INSURANCE  IN  EUROPE  21 

has  been  followed  by  few  countries.  Austria  in  1888  and 
Hungary  in  1891  were  the  earliest  to  fall  into  line.  In  the 
other  countries  the  force  of  the  movement  for  social  legisla- 
tion centralized  itself  upon  the  accident  problem.  Sickness 
was  not  entirely  neglected,  but  there  was  stronger  objection 
to  any  compulsory  system,  as  compulsion  in  this  case  would 
include  the  workmen.  The  hope  for  the  possibility  of  volun- 
tary insurance  was  given,  and  is  still  being  given,  a  much 
longer  trial  in  this  field  of  sickness  relief.  Of  course,  here  too 
the  modern  progressive  state  did  not  remain  altogether  inert. 
From  an  attitude  of  utter  neglect  and  even  antagonism 
towards  workmen 's  sick-benefit  associations,  most  of  the  states 
gradually  went  over  to  that  of  encouragement  and  control,  and 
then  took  the  next  step  to  financial  assistance  of  these  voluntary 
organizations  from  the  state  treasury,  as  do  now  France, 
Denmark,  Sweden,  Belgium,  Switzerland,  and  others.  But  it 
is  quite  significant  that  another  twenty  years'  experimenta- 
tion with  regulation,  encouragement,  and  subsidy  has  con- 
vinced even  the  most  obstinate  opponents  of  compulsion  that 
without  it  the  problem  of  sickness  in  a  workman 's  family  can- 
not be  solved.  Norway  in  1909  introduced  a  compulsory  sick- 
insurance  system,  as  did  little  Servia  in  1910;  and  Lloyd 
George's  great  English  National  Insurance  System  of  1911 
presents  the  latest  important  achievement  of  the  compulsory 
principle.  In  Italy  the  introduction  of  a  similar  scheme  has 
been  considered  for  a  long  time  and  its  final  success  is  assured 
by  the  fact  that  in  1911  Italy — the  first  of  all  European  coun- 
tries— introduced  a  centralized  national  compulsory  system  of 
insurance  of  wage-earning  women  in  case  of  maternity.  Even 
in  Russia  a  governmental  proposal  of  a  complete  sick-insurance 
system  has  passed  the  Duma  during  the  past  year  and  become 
law.  In  other  words,  having  more  or  less  satisfactorily  settled 
the  problem  of  accidents,  Europe  is  now  devoting  its  energy 
and  attention  to  the  kindred  subject  of  sick-insurance. 

In  a  similar  status  the  equally  important  problem  of  old- 
age  provision  may  be  said  to  be  at  present.  When  the  first 
proposals  for  social  insurance  were  carried  through  the  Ger- 
man Parliament  in  the  early  eighties,  it  was  announced  that  the 
question  of  old-age  provision  constitutes  an  essential  part  of  the 
new  social  policy.  But  even  in  Germany  another  five  years 
elapsed  before  the  old-age  pension  law  passed.  The  technical 


22  SOCIAL  INSURANCE 

aspects  of  any  old-age  insurance  are  so  complex  that  time  was 
needed  for  the  preparation  of  the  necessary  data.  Besides,  each, 
one  of  the  three  systems  imposed  new  burdens  upon  the  employ- 
ers and  naturally  the  latter  resisted  it  violently  and  had  to  be 
broken  in  gradually,  as  it  were. 

Here  perhaps  still  more  than  in  the  field  of  sick-insurance 
the  opposition  to  compulsion  was  strong.  It  was  argued  that 
old  age  was  not  an  emergency  as  are  accidents  and  sickness,  but 
a  perfectly  natural  stage  of  development ;  that  there  was  suffi- 
cient time  for  each  individual  to  make  the  necessary  pro- 
visions for  that  stage.  Much  eloquence  was  spent  in  describ- 
ing the  glorious  results  of  saving  habits,  and  a  good  deal  of 
hope  was  placed  in  savings  institutions  and  similar  methods 
of  encouraging  thrift. 

And  yet  what  was  the  inexorable  trend  of  events?  Educa- 
tional influences  proved  insufficient.  Material  assistance  was 
then  resorted  to.  France  and  Belgium  since  the  early  fifties 
experimented  with  national  institutions  for  voluntary  old- 
age  insurance,  and  so  long  as  the  assistance  was  limited  to 
providing  a  safe  place  and  assuming  the  administrative  costs, 
the  undertaking  was  a  perfect  failure.  More  direct  and  sub- 
stantial subsidies  were  next  tried.  In  1895  France  first  began 
to  grant  such  subsidies.  When  Italy,  in  1898,  organized  its 
National  Voluntary  Old- Age  Insurance  Institution,  substan- 
tial subsidies  were  from  the  first  made  a  part  of  the  system, 
and  in  that  country  such  subsidies  were  advocated  for  about 
twenty  years  previous  to  the  final  adoption  of  the  law.  In 
Belgium  after  forty  years  of  unsubsidized  insurance,  subsidies 
were  granted  in  a  small  way  from  1891,  and  later  the  policy 
of  subsidies  was  broadened  out  by  the  special  act  of  1900. 
Spain,  trailing  behind  the  more  progressive  countries,  has 
within  recent  years  (1908)  started  its  new  National  Old- Age 
Insurance  with  a  similar  subsidy  plan. 

But  in  vain  were  all  such  hopes  of  voluntary,  even  if  sub- 
sidized insurance,  and  the  progressive  world  has  recently 
come  flatly  to  recognize  its  insufficiency.  This  was  no  mere 
theoretical  conclusion.  For  almost  each  and  every  country 
had  evidences  of  the  advantage  of  the  compulsory  method  in 
its  own  midst.  In  industries  where  the  hazard  was  great, 
where  the  strenuous  work  made  premature  old  age  a  matter 
of  common  occurence,  and  finally  where  the  permanency  of 


SOCIAL  INSURANCE  IN  EUROPE  23 

service  made  for  a  closer  permanent  relationship  between  in- 
dustry and  labor,  compulsory  old-age  pension  insurance  had 
long  developed. .  Thus  in  navigation,  mining,  and  railroading, 
three  branches  of  industry  possessing  all  the  characteristics 
above  mentioned,  well-organized  old-age  pension  funds  had 
existed  in  many  countries  long  before  any  universal  system  of 
old-age  insurance  was  established.  In  almost  all  of  them  the 
principle  of  supplementary  contributions  from  employers,  and 
in  some  of  them  also  that  of  state  subsidies,  the  two  essential 
principles  of  modern  social  old-age  insurance,  had  already  been 
applied,  and  thus  an  object  lesson  given  of  the  advantages 
of  such  a  system. 

Simultaneously,  however,  with  this  movement  for  subsidized 
old-age  insurance,  a  movement  of  a  somewhat  different  nature 
grew  up,  which  had  its  most  important  manifestation  in  the 
British  old-age  pension  act  of  1908.  The  truth  is,  that  the 
movement  for  old-age  insurance  proceeded  from  several  differ- 
ent directions.  One  moving  force  was  the  necessity  of  meeting 
the  problem  of  superannuation  in  modern  industry — and  that 
led  up  to  private  pension  funds,  and  old-age  insurance  with 
compulsory  contributions  from  employers.  But  there  was 
another  tremendous  moving  force  in  the  desire  to  improve  the 
conditions  of  poor  relief  in  these  countries,  where  such  relief 
for  the  aged  was  admitted  as  a  right.  Denmark  was  the 
pioneer  in  this  development  of  national  old-age  pensions  with 
its  laws  of  1891,  "  providing  old-age  support  for  the  worthy 
poor  aside  from  poor  relief,"  and  there  were  many  good 
reasons  why  Great  Britain  selected  this  path  rather  than 
that  of  compulsory  old-age  insurance,  when  it  finally  passed 
a  measure  in  1908.  Quite  naturally  the  same  preference  for 
straight  old-age  pensions  is  found  in  the  Australasian  Colonies, 
which,  in  point  of  accomplishment,  actually  got  ahead  of 
Great  Britain  by  some  eight  years.  But  a  very  curious  com- 
bination of  both  forms  of  old-age  provision  may  be  found  in 
France,  where  in  1905,  or  three  years  earlier  than  in  Eng- 
land, an  old-age  pension  law  for  worthy  poor  was  passed,  and 
nevertheless  was  five  years  later  followed  by  a  compulsory 
old-age  insurance  system,  which  exists  side  by  side  with  the 
older  one. 

While,  theoretically  at  least,  the  proper  measures  for  meeting 
the  economic  problems  of  accident,  disease,  and  old  age,  have 


24  SOCIAL  INSURANCE 

been  discovered  and  to  a  great  extent  applied,  the  situation 
is  very  complex  in  one  branch  of  social  insurance,  which,  as 
the  most  learned  theorists  of  social  insurance  admit,  is 
the  pivotal  point  by  which  the  entire  structure  of  social 
insurance  is  to  be  judged — and  that  is  unemployment  in- 
surance. For  many  years  the  problem  of  unemployment 
insurance  baffled  the  best  efforts,  and  was  by  many  considered 
insolvable.  Not  only  the  vastness  of  the  problem,  but  also  the 
difficulty  of  differentiating  between  voluntary  and  involuntary 
unemployment,  the  very  great  danger  of  simulation,  and 
finally  the  very  close  connection  of  the  question  of  unemploy- 
ment with  the  entire  matter  of  the  struggle  between  the  em- 
ployer and  labor,  and  the  grave  problems  raised  by  state 
intervention  in  the  struggle — all  this  made  the  possibility  of 
state  insurance  of  unemployment  a  very  doubtful  one.  Many 
experiments  failed.  Others,  while  successful,  were  altogether 
insignificant  in  the  extent  of  their  application.  But  in  1900, 
in  a  very  small  way,  the  Belgian  city  of  Ghent  began  the  ex- 
periment of  subsidizing  labor  unions  in  this  work.  The  ex- 
periment was  watched  very  carefully,  and  very  soon  was 
admitted  to  be  a  very  effective  way  of  meeting  the  problem,  if 
the  problem  is  ever  to  be  met.  The  experiment  was,  therefore, 
soon  tried  in  other  countries;  in  Italy  by  the  large  Milan 
foundation  for  social  welfare  in  1905.  In  Germany  a  number 
of  cities  in  1907,  and  many  more  since  1909,  have  developed 
this  plan.  In  France,  Norway,  and  Denmark,  the  very  inter- 
esting, and  from  the  ordinary  American  point  of  view  almost 
incredible,  situation  is  found  of  the  Central  Government  sub- 
sidizing labor  unions  or  other  organizations  of  wage-workers 
in  their  function  of  paying  unemployment  benefits  and  a 
similar  measure  is  earnestly  agitated  for  in  Italy.  And 
finally,  Great  Britain,  towards  the  close  of  1911,  passed  its 
compulsory  unemployment  insurance  system,  the  first  national 
system  in  this  field,  covering  nearly  two  and  a  half  million 
workmen.  It  may  finally  be  said  that  a  theoretical  answer  to 
the  question  "  Is  unemployment  insurance  possible?  "  has 
been  given,  and  the  answer  is  in  the  affirmative. 

With  accident,  sickness,  old  age,  and  unemployment,  the  list 
of  the  existing  social  insurance  institutions  practically  closes. 
But  in  the  future  another  branch,  as  yet  very  little  spoken 
of,  is  bound  to  achieve  a  good  deal  of  prominence.  This  is 


SOCIAL  INSURANCE  IN  EUROPE  25 

the  insurance  of  widows  and  orphans,  or  ordinary  life  insur- 
ance. 

It  may  seem  peculiar  that  while  this  form  of  insurance, 
providing  financial  relief  in  case  of  death  from  ordinary  causes, 
is  the  most  popular  form  of  private  insurance,  it  is  least  taken 
care  of  by  any  existing  system  of  social  insurance,  though 
for  obvious  reasons  the  necessity  for  it  is  greatest  among  the 
wage-earning  class.  The  reason  for  this  seemingly  inexplain- 
able  exception  is  found  not  in  the  lack  of  need,  but  of  the 
ways  and  means.  Ordinary  life  insurance  is  of  necessity 
costly.  It  is  cheaper  for  younger  age  groups,  when  the  risk 
of  death  is  small,  but  then  the  need  of  it  is  not  very  great. 
With  increasing  age  the  cost,  on  actuarial  principles,  rises 
with  the  need.  In  so  far  as  efforts  have  been  made  to  provide 
the  wage-earner  with  life  insurance,  they  have  only  suc- 
ceeded in  proving  the  frightfully  high  cost,  and  one  is  justified 
in  doubting  whether  the  advantages  of  our  entire  system  of 
so-called  industrial  life  insurance  justify  the  cost. 

But  it  becomes  quite  evident  that  the  structure  of  social 
insurance  is  not  complete  until  at  least  the  widows  and 
orphans  are  taken  care  of  by  the  system.  For  here  appears 
again  the  central  principle  upon  which  social  insurance  is 
based — the  inability  of  the  wage-earning  class  to  meet  the  cost 
of  insurance  based  upon  ordinary  commercial  principles. 

Already  the  first  steps  in  the  right  direction  have  been  made 
in  a  few  isolated  instances.  What  was  true  of  old-age  and 
invalidity  insurance  is  also  true  of  widows'  and  orphans'  in- 
surance. The  more  compact  and  better  paid  groups  of  wage- 
earners  in  navigation,  mining,  and  railroads,  are  already 
provided  with  such  form  of  insurance  in  many  countries.  We 
already  find  such  pension  systems  in  the  mining  industry  of 
Austria,  Belgium,  France,  Germany,  and  Great  Britain;  in 
the  railroad  industry  of  Belgium,  France,  Germany,  Russia, 
and  Spain;  in  the  navigation  industry  of  France,  Germany, 
and  others. 

Outside  of  these  definite  wage  groups  several  states  have 
made  an  effort  to  meet  the  need  by  providing  cheap  voluntary 
insurance.  Such  efforts  either  in  connection  with  the  Postal 
Savings  Bank  System,  or  old-age  insurance  institutions,  have 
been  made  in  England,  in  France,  in  Italy,  and  even  in  Rus- 
sia. But  needless  to  say  they  have  been  invariably  complete 


26  SOCIAL  INSURANCE 

failures.  France  was  the  pioneer  in  this  problem,  by  provid- 
ing for  a  small  death  benefit  continuing  only  for  six  months, 
as  a  part  of  its  new  old-age  insurance  system.  But  Germany 
was  again  the  first  to  provide  a  comprehensive  widows'  and 
orphans '  pension  system  for  its  entire  wage-earning  population, 
through  the  new  insurance  act  of  1911,  revising  all  its  existing 
social  insurance  legislation.  Thus  a  new  path  has  been  opened 
for  other  civilized  countries  to  follow.  Finally,  the  United 
States,  within  the  last  two  or  three  years,  by  the  somewhat 
sudden  development  of  the  mothers'  pension  movement,  has 
indicated  at  least  the  possibility  of  a  different  solution  of  the 
same  problem. 

This,  very  briefly,  has  been  the  rapid  development  of  the 
complex  body  of  legislation  towards  social  insurance  in  Eu- 
rope. Enough  has  been  said  to  indicate,  in  the  very  beginning 
of  our  study,  that  the  movement  towards  social  insurance  is 
not  a  local  or  temporary  movement.  From  the  frozen  shores 
of  Norway  down  to  the  sunny  clime  of  Italy,  from  the  furthest 
East  and  up  to  Spain,  all  Europe,  whether  Germanic,  Saxon, 
Latin,  or  Slav,  follows  the  same  path.  Some  countries  have 
made  greater  advance  than  others,  but  none  have  remained 
outside  of  the  procession,  unless  it  be  a  few  of  the  more  in- 
significant principalities  of  the  Balkan  peninsula.  The  move- 
ment for  social  insurance  is  one  of  the  most  important  world 
movements  of  our  times.  From  a  historical  point  of  view, 
this  brief  account  alone  is,  therefore,  a  sufficient  argument  for 
its  extension  to  our  country.  However,  no  country  has  joined 
the  procession  out  of  the  unreasoning  desire  for  imitation. 
And  before  the  American  people  will  be  ready  to  follow,  it  will 
know  a  great  deal  more  of  the  positive  results  for  social  good 
which  the  system  of  social  insurance  has  accomplished  than  it 
knows  now.  But  an  intelligent  appreciation  of  these  results 
can  only  be  had  after  a  more  or  less  thorough  study  of  the 
various  laws,  systems,  and  institutions  included  under  the 
comprehensive  title  of  social  insurance,  for  only  then  may 
the  results  achieved  be  weighed  in  the  light  of  the  many  im- 
portant limitations  upon  the  systems  existing. 

Meanwhile  it  will  be  well  for  the  reader  to  remember  that : 
1.  Accident  compensation  or  accident  insurance  has  been 
established  practically  throughout  Europe  and  in  many  British 
colonies. 


SOCIAL  INSURANCE  IN  EUROPE  27 

2.  Compulsory  sickness  insurance  has  been  introduced  in 
about  one-half  of  the  large  countries  of  Europe,  namely,  Ger- 
many, Austria,.  Hungary,  Norway,  Great  Britain,  Servia,  and 
Russia,  and  voluntary  subsidized  sickness  insurance  in  France, 
Belgium,  Denmark,  Sweden,  and  Switzerland. 

3.  Compulsory  old-age  insurance  exists  in  Germany,  Luxem- 
burg, and  France,  and  old-age  pensions  in  Denmark,  Iceland, 
Great  Britain,  France,  Australia,  and  New  Zealand,  and  volun- 
tary subsidized  state  systems  of  old-age  insurance  in  Italy, 
Belgium,  Servia,  and  Spain. 

4.  Unemployment  insurance  by  means  of  subsidies  to  work- 
ingmen's    voluntary   organizations    is   rapidly   spreading   in 
large  European  cities,  exists  by  national  law  in  Norway  and 
Denmark,  and  the  first  compulsory  unemployment  insurance 
system  has  been  established  in  Great  Britain ;  and 

5.  The  first  beginnings  of  a  national  system  of  widows'  and 
orphans'  pensions  have  been  made  in  Germany. 


CHAPTER  III 

\ 

THE  NEED  OF  SOCIAL  INSURANCE  IN  THE  UNITED 

STATES 

Is  there  any  urgent  need  for  a  policy  of  social  insurance 
in  the  United  States  ?  To  some  the  question  may  appear  trite. 
The  economic  development  of  America  proceeds  along  lines 
very  much  similar  to  those  of  the  development  in  Europe,  and 
as  a  result  the  same  problems  arise  and  the  same  remedies 
suggest  themselves.  Modern  development  of  industry  is  not 
limited  by  national  boundaries.  The  relation  between  capital 
and  labor,  the  growth  of  the  labor  movement,  the  growth  of 
socialism — all  these  phenomena  proceed  in  all  industrial  coun- 
tries, perhaps  at  different  rates  of  speed,  but  otherwise  with 
comparatively  little  difference  between  one  country  and  an- 
other. The  preceding  chapter  has  shown,  it  is  hoped  quite 
conclusively,  that  social  insurance  is  not  a  specific  feature  of 
economic  development  of  any  one  country,  but  of  all  industrial 
countries.  For  some  students,  therefore,  the  answer  to  the 
query  we  have  put  is  quite  self-evident. 

But  it  would  be  futile  to  assume  that  this  attitude  is  one 
generally  held  in  the  United  States.  Indeed,  the  opinion  is 
still  held  by  a  large  majority  among  American  economists, 
business  men,  and  even  wage-workers,  that  the  conditions  in 
the  United  States  are  essentially  different,  so  as  to  make  the 
organization  of  social  insurance  institutions  both  superfluous 
and  impossible. *  This  view  is  not  based,  and  could  not  be 
based,  upon  the  consideration  that  the  physical  dangers  against 
which  social  insurance  aims  to  grant  protection,  do  not  exist, 
or  exist  to  a  smaller  extent  in  the  United  States.  Indeed,  it 
is  unfortunately  but  too  true  that  there  are  more  accidents, 
more  sickness,  more  premature  old  age  and  invalidity,  and 
more  unemployment  in  the  United  States  than  in  most  Euro- 
pean countries.  But  the  objection  to  a  policy  of  social  insur- 

28 


NEED  OF  SOCIAL  INSURANCE  IN  U.  S.         29 

ance  in  the  United  States  is  based  primarily  upon  the  plausible 
arguments  that  the  economic  condition  of  the  working  class 
is  such  as  to  enable  it  to  meet  the  financial  dangers  without 
systematic  assistance  or  state  interference,  and  that  the  degree 
of  active  interference  of  the  state  with  the  personal  freedom 
of  both  employer  and  employee,  and  with  the  relations  of 
capital  and  labor  which  a  social  insurance  policy  presupposes, 
is  contrary  to  the  spirit  of  American  life  and  government.  The 
basis  of  these  arguments  must,  therefore,  be  carefully  con- 
sidered. 

It  would  scarcely  seem  necessary  to  marshal  much  statis- 
tical evidence  in  support  of  the  thesis,  that  the  American 
people  is  rapidly  becoming  a  wage-working  people,  though, 
unfortunately,  there  is  no  reliable  way  to  measure  the  velocity 
of  this  process  accurately.  The  American  decennial  censuses, 
which  publish  such  enormous  volumes  of  statistical  informa- 
tion, have  never  undertaken  to  furnish  a  reply  to  the  ques- 
tion :  What  proportion  of  the  productive  population  are  wage- 
workers,  what  employers  of  labor,  what  independent  pro- 
ducers? The  latest  census,  of  1910,  has  included  this  ques- 
tion in  its  schedule,  and  some  very  important  results  may  be 
expected,  but  these  will  probably  not  be  forthcoming  for  some 
years.  In  absence  of  official  information,  the  very  ingeni- 
ous statistician,  Dr.  I.  A.  Hourwich  of  the  United  States 
Census  office,  has  undertaken  to  elaborate  a  plausible  estimate 
on  the  basis  of  available  material.1  While  his  methods  are 
extremely  conservative,  he  arrives,  for  1900,  at  the  following 
conclusions.  The  class  of  industrial  wage-earners  "  has  in- 
creased from  27.4  of  all  persons  gainfully  employed  in  1870, 
to  34.8$  in  1900. "  But  in  addition  there  are  other  large  wage- 
earning  classes,  and  in  1900  they  were  approximately  as 
follows : 

Per  cent. 

Farm  Laborers  (not  members  of  the  family) 2,093,033        7.1 

Salaried  Employees 1,189,079        3.9 

Selling  Force  622,295        2.1 

Domestic  Service 1,458,010        5.0 

Industrial  Wage-earners 9,977,118      34 . 1 

15,339,535      52.2 
1  Journal  of  Political  Economy,  1911,  p.  205, 


30  SOCIAL  INSURANCE 

Thus,  a  majority  of  the  29,000,000  gainfully  employed,  were 
broadly,  wage-earners.  Considering  the  further  development 
of  a  decade  of  industrial  growth,  and  the  extreme  conservatism 
of  Dr.  Hourwich  's  computations,  it  is  a  far  assumption  that  in 
1910  some  two-thirds  of  the  population  were  earning  wages  or 
moderate  salaries,  about  one-fifth  were  independent  farmers, 
and  the  three  classes  of  employers,  independent  producers,  and 
strictly  professional  people  combined,  did  not  exceed  one- 
seventh  of  the  entire  productive  population. 

What  of  it?  the  man  in  the  street  may  flippantly  ask. 
Are  not  the  American  wages  the  highest  in  the  world?  Isn't 
the  necessity  for  keeping  up  this  American  standard  of  wages 
and  of  life  for  the  wage-workers  recognized  in  our  entire 
protective  policy?  Do  not  millions  of  European  immigrants 
arrive  at  our  shores  annually  to  take  advantage  of  this  very 
standard  of  American  wages?  No  one  will  deny  a  certain 
amount  of  truth  in  this  contention.  Only  a  certain  amount, 
however.  It  is  quite  true  that  the  American  level  of  wages 
is  higher  than  that  for  most  European  countries,  and  this, 
especially  from  the  point  of  view  of  the  recent  immigrant  from 
a  rural  European  community,  while  he  is  willing  to  keep  up 
his  European  standard  of  life,  or  is  willing  to  stand  the  great- 
est privations  in  order  to  permit  accumulation,  is  sufficient 
argument  for  immigration. 

But,  obviously,  the  American  standard  of  wages  must  be  con- 
sidered and  judged  in  conjunction  with  the  American  cost 
of  living  and  American  standard  of  life. 

In  his  book,  Organized  Labor,  John  Mitchell  draws  an  ideal 
picture  of  what  the  American  standard  of  living  ought  to  be. 
The  picture  drawn  is  not  a  description  of  the  ordinary  standard 
of  life  as  actually  found  in  the  majority  of  cases,  but  it  is  the 
standard  as  it  exists  for  some  wage-workers,  which  a  working- 
man  quite  naturally  aspires  to,  and  which  few  will  consider  an 
exaggerated  one.  A  sort  of  a  practical  ideal,  it  might  be 
called.  What  is  it? 

"  The  American  standard  of  living  should  mean,  to  the  ordinary 
unskilled  workman  with  an  average  family,  a  comfortable  house  of 
at  least  six  rooms.  It  should  mean  a  bathroom,  good  sanitary 
plumbing,  a  parlor,  dining  room,  kitchen,  and  sufficient  sleeping 
room  that  decency  may  be  preserved  and  a  reasonable  degree  of 
comfort  maintained.  The  American  standard  of  living  should  mean 


NEED  OF  SOCIAL  INSURANCE  IN  U,  S.         31 

to  the  unskilled  workman  carpets,  pictures,  books,  and  furniture 
with  which  to  make  home  bright,  comfortable,  and  attractive  for 
himself  and  his  family,  an  ample  supply  of  clothing  suitable  for 
winter  and  summer,  and  above  all  a  sufficient  quantity  of  good, 
wholesome,  nourishing  food  at  all  times  of  the  year.  The  American 
standard  of  living,  moreover,  should  mean  to  the  unskilled  workman 
that  his  children  be  kept  in  school  until  they  have  attained  to  the 
age  of  sixteen  at  least,  and  that  he  be  enabled  to  lay  by  sufficient 
to  maintain  himself  and  his  family  in  times  of  illness,  or  at  the  close 
of  his  industrial  life,  when  age  and  weakness  render  further  work 
impossible,  and  to  make  provision  for  his  family  against  his  prema- 
ture death  from  accident  or  otherwise." 

For  such  a  standard  John  Mitchell  thought  at  least  $600 
necessary  for  an  average  family.  But  this  estimate,  quite  lack- 
ing in  statistical  evidence,  was  made  some  ten  years  ago,  and 
referred  to  semi-rural  communities.  As  a  result  of  more  care- 
ful study,  a  Special  Committee  on  Standard  of  Living  of  the 
New  York  State  Conference  of  Charities  and  Corrections,  re- 
porting in  November,  1907,  made  the  following  statements, 
emphasized  by  italics: 

"  It  requires  no  citation  of  elaborate  statistics  to  bring  convincing 
proof  that  $600  to  $700  is  wholly  inadequate  to  maintain  a  proper 
standard  of  living,  and  no  self-respecting  family  should  be  asked  or 
expected  to  live  on  such  an  income.2 

"  The  Committee  believes  that  with  an  income  of  between  $700 
and  $800  a  family  can  barely  support  itself,  provided  that  it  is 
subject  to  no  extraordinary  expenditures  by  reason  of  sickness,  death, 
or  other  untoward  circumstances.  Such  a  family  can  live  without 
charitable  assistance  through  exceptional  management  and  in  the 
absence  of  emergencies,"  3  and  finally : 

"  The  Committee  is  of  the  opinion  that  it  is  fairly  conservative 
in  its  estimate  that  $825  is  sufficient  for  the  average  family  of  five 
individuals,  comprising  the  father,  mother,  and  three  children  under 
fourteen  years  of  age,  to  maintain  a  fairly  proper  standard  of  living 
in  the  Borough  of  Manhattan." 

It  may  be  argued  that  these  exceptionally  high  estimates  are 
applicable  only  to  the  high  cost  of  living  in  the  City  of  New 
York.  But  the  Committee  meets  this  criticism  in  the  following 
significant  statement: 

"  The  extent  to  which  this  amount  would  be  changed  in  the  other 
boroughs  of  Greater  New  York  would  be  measured  largely  by  the  item 

2  The   Standard  of  Living  Among   Workingmen's   Families   in  New 
York  City,  by  R.  C.  Chapin,  p.  278. 
8  Ibid.,  p.  279. 


32  SOCIAL  INSURANCE 

of  rent,  and  not  by  the  other  items  in  the  budget.  The  item  may 
vary  from  $15  to  $30  per  annum  in  the  borough  of  Brooklyn,  prob- 
ably a  similar  amount  in  the  Borough  of  Bronx." 

And  as  outside  the  level  of  house  rents  the  standard  of 
prices  is  not  higher,  and  in  many  instances  lower  in  New 
York  than  in  many  other  cities,  the  normal  standards  indicated 
are  on  the  whole  applicable  to  all  cities  of  some  size  through- 
out the  United  States. 

On  the  basis  of  a  more  thorough  and  critical  study  of  the 
data  collected  for  this  Committee,  Professor  Robert  Coit 
Chapin  concludes:4 

"  An  income  of  $900  or  over  probably  permits  the  maintenance  of 
a  normal  standard,  at  least  as  far  as  the  physical  man  is  concerned. 
Families  having  from  $900  to  $1,000  a  year  are  able,  in  general, 
to  get  food  enough  to  keep  body  and  soul  together,  and  clothing 
and  shelter  enough  to  meet  the  most  urgent  demands  of  decency." 

In  weighing  the  significance  of  these  conclusions  it  must 
be  remembered  that  they  are  based  upon  the  price  level  of 
1907,  when  the  information  for  the  investigation  was  gathered, 
since  which  time  the  prices  have  continued  to  rise;  and  the 
recent  investigation  of  the  U.  S.  Bureau  of  Labor  has  shown 
that,  taking  the  average  level  of  prices  between  1890  and 
1899  as  100,  the  level  of  retail  prices  of  food  in  1907  was  128, 
and  by  the  middle  of  1912  150 ;  an  increase  of  22$  in  five  years. 

This  being  the  case,  how  large  a  proportion  of  the  American 
working  class  could  boast  of  such  income?  In  reply  to  this 
question  it  is  only  necessary  to  quote  the  conclusions  arrived 
at  by  Professor  Scott  Nearing  as  a  result  of  his  short  but 
painstaking  and  very  important  investigation  of  all  available 
American  sources  of  wage  statistics.5 

"It  is  fair  to  say  that  the  adult  male  wage-workers  in  the  in- 
dustries of  that  section  of  the  United  States  lying  east  of  the  Rockies 
and  north  of  the  Mason  and  Dixon  Line,  receive  a  total  average 
annual  wage  of  about  $600;  that  this  falls  to  $500  in  some  of  the 
industries  employing  the  largest  number  of  persons,  but  rises  to 
$700,  or  even  to  $750,  in  a  few  highly  skilled  industries.  That 
the  average  annual  earnings  of  adult  females  in  the  same  area 

4  IUd.,  p.  246. 

•  Wages  in  the  United  States,  1908-1910,  by  Scott  Nearing. 


NEED  OF  SOCIAL  INSURANCE  IN  U.  S.         33 

is  about  $350,  with  a  very  slight  range,  in  the  industries  employing 
large  numbers  of  adult  females."  6 

"  On  the  other  hand,  a  study  of  classified  wage  statistics  shows 
that  half  of  the  adult  males  working  in  the  industrial  sections  of 
the  United  States,  receive  less  than  $600  per  year;  three-quarters 
are  paid  less  than  $750  annually;  and  less  than  one-tenth  earn 
$1,000  a  year.  Half  of  the  women  fall  below  $400  a  year,  while 
nearly  nine-tenths  receive  less  than  $750.  These  figures  are  not 
accurate,  however,  since  they  are  all  gross  figures,  including  un- 
employment. They  should  be  reduced  by,  perhaps  20$,  varying 
with  the  year,  the  location,  and  the  industry.  Making,  therefore,  a 
reduction  of  one-fifth,  it  appears  that  half  of  the  adult  males  of 
the  United  States  are  earning  less  than  $500  a  year;  that  three- 
quarters  of  them  are  earning  less  than  $600  annually;  that  nine- 
tenths  are  receiving  less  than  $800  a  year;  while  less  than  10$ 
receive  more  than  that  figure.  A  corresponding  computation  of  the 
wages  of  women  shows  that  a  fifth  earn  less  than  $200  annually; 
that  three-fifths  are  receiving  less  than  $325;  that  nine-tenths  are 
earning  less  than  $500  a  year;  while  only  one-twentieth  are  paid 
more  than  $600  a  year. 

"  Here,  then,  in  brief  is  an  answer  to  the  vital  question — What 
are  wages?  For  the  available  sources  of  statistics,  and  by  inference 
for  neighboring  localities,  the  annual  earnings  (unemployment  of 
20$  deducted)  of  adult  males  and  females  east  of  the  Rockies  and 
north  of  the  Mason  and  Dixon  Line,  are  distributed  over  the  wage 
scale  thus: — 

Annual  earnings  Adult  males      Adult  females 

Under  $200 1/5 

"         325 1/10  3/5 

"         500 1/2  9/10 

"         600 3/4          19/20 

"         800 9/10 

"  Three-quarters  of  the  adult  males  and  nineteen-twentieths  of  the 
adult  females  actually  earn  less  than  $600  per  year." 

The  conclusions  of  Professor  Nearing,  expressed  as  they  are 
in  unemotional  figures  and  percentages,  produce  a  violent  shock 
to  the  satisfaction  and  complacency  of  the  man  in  the  street. 
He  will  be  loath  to  admit  the  fact  that  three-quarters  of  the 
male  workers  and  95$  of  the  female  workers  earn  less  than 
two-thirds  of  the  amount  necessary  for  physical  efficiency  and 
decent  existence.  He  will  insist  that  a  large  proportion  of 
American  workmen's  families  do,  of  his  own  certain  knowl- 
edge, live  in  a  condition  of  a  normal  standard.  What  he  for- 
gets is,  that  this  standard  can  in  the  majority  of  cases  be 
achieved  only  in  one  way,  by  the  presence  of  more  than  one 

6  Ibid.,  p.  208. 


34  SOCIAL  INSURANCE 

worker  in  the  family.  Of  the  416  families  whose  budget  was 
studied  by  Professor  Chapin,  only  149,  or  less  than  half,  were 
able  to  get  along  with  the  father's  earnings  alone.  Of  167 
families  with  incomes  of  $800  to  $1,000  only  63,  or  37$,  were 
depending  upon  the  earnings  of  the  father  alone. 

In  the  more  extensive  but  less  detailed  investigation  of 
25,440  families  by  the  U.  S.  Bureau  of  Labor,  while  the 
average  income  per  family  was  $749.50,  the  average  earnings  of 
the  father  were  only  $621.12,  and  for  the  "  normal  "  families 
with  only  the  father  at  work  the  average  income  was  $659.68. 

It  is  true  that  the  presence  of  two  or  more  workers  in  the 
family  materially  improves  its  economic  status.  But  it  is 
usually  forgotten  that  such  a  condition  must  be  exceptional, 
and  for  every  family  temporary.  An  additional  worker  may 
be  found  in  the  wife  or  in  the  children,  but  the  necessity  for  the 
wage- worker 's  wife  who  is  a  mother,  to  look  for  additional 
income,  is,  of  itself,  a  symptom  of  economic  distress.  It  is 
pregnant  of  serious  influences  upon  the  hygienic  and  moral 
standard  of  family  life.  That  the  revenue  obtained  from  the 
work  of  the  children  is  temporary  only,  needs  no  proof.  And 
with  increased  stringency  of  child-labor  laws,  and  the  growing 
recognition  of  the  necessity  of  industrial  education,  it  must 
come  later  in  the  history  of  the  family,  and  last  a  shorter 
time.  Evidently  a  theory  of  the  economic  status  of  the  work- 
er's family,  of  the  necessary  standard,  of  the  probability  of 
a  surplus,  and  the  possibility  of  savings,  must  be  based  upon 
the  earnings  of  the  head  of  the  family  exclusively. 

One  loophole  remains  for  the  optimism  of  the  man  in  the 
street.  While  the  wages  may  be  small,  maybe  too  small,  they 
show  a  tendency  to  increase,  so  that  there  seems  to  be  an 
automatic  corrective  of  the  serious  problems  described.  Thus 
Professor  Thomas  C.  Adams  states  quite  positively: 

"  Statistical  data  prove  with  substantial  certainty  that  the  wage- 
earner  has  made  a  marked  and  reasonably  steady  advance  since  the 
settlement  of  America.  The  year  1866  ushered  in  a  new  epoch 
during  which  it  is  no  exaggeration  to  say,  the  American  workingman 
advanced  in  a  manner  unprecedented  in  this  country."  7 

Professor  Adams  bases  this  conclusion  upon  a  comparison  of 

wage  statistics  derived  from  these  different  sources,  and  which, 

7  Labor  Problems,  by  T.  C.  Adams  and  Helen  Sumner,  p.  503. 


NEED  OF  SOCIAL  INSURANCE  IN  U,  S.         35 

he  himself  is  forced  to  admit,  are  far  from  being  strictly 
comparable.  The  result  obtained  is  encouraging.  The  rela- 
tive standard  of  true  wages  as  measured  by  its  purchasing 
power  has  risen,  Professor  Adams  thinks,  from  47.9  in  1866, 
to  104.5  in  1900,  or  more  than  doubled. 

These  conclusions,  and  the  statistical  data  upon  which  they 
are  based,  have  been  given  a  good  deal  of  confidence  and  wide 
publicity  in  recent  American  economic  literature. 

Unfortunately  more  careful  inspection  of  these  figures  as 
quoted  shows  clearly  that  this  optimistic  conclusion  is  alto- 
gether unwarranted,  that  if  there  was  such  an  increase  it  took 
place  primarily  during  the  earlier  portion  of  the  epoch  under 
consideration.  Here  are  the  figures: 

FLUCTUATION  OF  STANDARD  OF  TRUE  WAGES  IN  THE  UNITED  STATES 
(WAGES  IN  1890—100.0) 

1866  47.9  1885  98.2 

1870  60.7  1890  100.0 

1875  72.5  1895  102.0 

1880  82.8  1900  104.5 

If  the  data  were  dependable,  as  they  are  assumed  to  be  by 
many  writers,  it  would  follow  that  within  the  first  decade 
1866-1875,  the  wages  have  increased  over  50#;  in  1875-1885 
from  72.5  to  98.2,  or  35#;  and  in  1885-1900  only  6.4#,  so 
that  it  would  require  a  good  deal  of  optimism  to  grow 
enthusiastic  over  the  present  tendency  towards  a  higher  wage 
level. 

All  these  optimistic  deductions  are  based  upon  the  flimsiest 
statistical  evidence  imaginable.  Professor  Adams  has  brought 
together  three  statistical  sources:  for  1866-1869  unweighted 
averages  in  twenty-one  industries  from  the  thoroughly  dis- 
credited Aldrich  Report  on  Wholesale  Prices  and  Transporta- 
tion ;  for  1870-1879  statistics  of  only  twenty-five  occupations  in 
twelve  cities,  as  published  by  the  U.  S.  Department  of  Labor,8 
and  so  little  trusted  by  the  statisticians  of  that  Department 
(now  Bureau)  that  they  are  never  used  in  the  official  publica- 
tions for  comparison  with  later  data;  and  finally,  the  much 

8  Bulletin  of  the  U.  S.  Department  of  Labor,  No.  18;  September, 
1898;  pp.  665-93. 


36  SOCIAL  INSURANCE 

more  accurate  and  trustworthy  data  of  the  Bureau  of  Labor  for 
1890-1900. 

How  thoroughly  misleading  these  comparisons  are,  is  easily 
seen  when  it  is  pointed  out  that  the  greatest  increase  in  wages 
is  noticeable  only  when  the  jump  is  made  from  one  statistical 
source  into  the  other.  Thus,  according  to  the  first  source,  the 
comparative  wage  in  1869  is  shown  by  Professor  Adams  to  be 
52.7.  But  for  1870,  i.e.,  only  one  year  later,  the  wage  is  shown 
to  be  68.7  (from  a  different  source,  of  course).  How  many 
students  would  be  willing  to  admit  an  increase  of  30$  in  the 
average  wage  level  in  one  year  ?  In  1883,  the  wages,  according 
to  Professor  Adams,  were  85.9 ;  in  1884,  90$,  and  in  1885,  98.2$. 
An  increase  of  14$  in  two  years!  Again,  when  the  jump  is 
made  for  the  second  set  of  figures  in  the  third,  the  wage 
level  increases  suddenly  from  94.8  in  1889,  to  100.0  in  1890, 
an  increase  of  5.5$  in  one  year.  And  only  6$  within  the 
last  fifteen  years! 

It  is  still  more  difficult  to  accept  this  optimistic  reasoning 
after  a  very  careful  examination  of  the  more  scientific  evi- 
dence available.  The  statements  of  the  increase  of  wages  are 
usually  based  at  present  upon  the  results  of  the  annual  in- 
vestigations of  the  U.  S.  Bureau  of  Labor  as  to  changes  in 
the  retail  prices  and  wages  and  hours  of  labor.  These  in- 
vestigations embrace  the  period  since  1890  until  1912,  but, 
unfortunately,  for  the  last  five  years  only  the  retail  prices 
and  the  fluctuations  in  wages  are  available,  though  a  contin- 
uation of  the  data  as  to  wages  and  hours  of  labor  is 
promised  for  the  near  future.  Thus  the  information  avail- 
able covers  a  sufficiently  long  period  of  time  for  the  study 
of  present-day  tendencies.  For,  after  all,  a  comparison  of 
the  true  wages  of  fifty  years  ago  and  of  to-day,  though  of 
great  scientific  interest,  is  of  very  little  importance  in  the 
discussion  of  the  problems  of  the  day. 

An  enormous  literature,  especially  of  the  optimistic,  spread- 
eagle  variety,  has  grown  around  these  figures.  They  have 
always  furnished  valuable  material  for  the  sort  of  economic 
reasoning  which  is  popularized  by  the  Republican  Campaign 
Text-books  of  Presidential  and  Congressional  elections.  Most 
readers  have  probably  seen  these  statistical  figures;  neverthe- 
less, in  order  to  preserve  the  continuity  of  the  argument,  it 
will  be  best  to  present  them  here. 


NEED  OF  SOCIAL  INSURANCE  IN  U,  S.         37 

RELATIVE  HOURS  PER  WEEK,  WAGES  PER  HOUR,  FULL  TIME  WEEKLY 
EARNINGS  PER  EMPLOYEE,  RETAIL  PRICES  OF  FOOD,  AND  PURCHASING 
POWER  OF  HOURLY  WAGES  AND  OF  FULL  TIME  WEEKLY  EARNINGS 
PER  EMPLOYEE,  MEASURED  BY  RETAIL  PRICES  OF  FOOD,  1890  TO  1907 

Purchasing  power  measured 
by  retail  prices  of  food  of 

!      ti.      1         I       sf 


Year 

Hours  per  i 

Wages  per 

^S* 

sfs. 

«3  fl  a 

i 

^•o 

P 
g 

5 

2s 

1 

1890  

100.7 

100.3 

101.0 

102.4 

97.9 

98.6 

1891.... 

100.5 

100.3 

100.8 

103.8 

96.6 

97.1 

1892.... 

100.5 

100.8 

101.3 

101.9 

98.9 

99.4 

1893  

100.3 

100.9 

101.2 

104.4 

96.6 

96.9 

1894  

99.8 

97.9 

97.7 

99.7 

98.2 

98.0 

1895.... 

100.1 

98.3 

98.4 

97.8 

100.5 

100.6 

1896.... 

99.8 

99.7 

99.5 

95.5 

104.4 

104.2 

1897  

99.6 

99.6 

99.2 

96.3 

103.4 

103.0 

1898  

99.7 

100.2 

99.9 

98.7 

101.5 

101.2 

1899  

99.2 

102.0 

101.2 

99.5 

102.5 

101.7 

1900.... 

98.7 

105.5 

104.1 

101.1 

104.4 

103.0 

1901.... 

98.1 

108.0 

105.9 

105.2 

102.7 

100.7 

1902.... 

97.3 

112.2 

109.2 

110.9 

101.2 

98.5 

1903  

96.9 

116.3 

112.3 

110.3 

105.4 

101.8 

1904.... 

95.9 

117.0 

112.2 

111.7 

104.7 

100.4 

1905.... 

95.9 

118.9 

114.0 

112.4 

105.8 

101.4 

1906  

95.4 

124.2 

118.5 

115.7 

107.3 

102.4 

1907.  . 

95.0 

128.8 

122.4 

120.6 

106.8 

101.8 

The  accuracy  of  these  data  has  been  severely  assailed  by 
some  economists  and  statisticians,  and  warmly  supported  by 
others.  But  no  one  has  ever  suspected  the  institution  col- 
lecting them  of  an  intention  to  underrate  the  progress  of  the 
workmen's  prosperity.  On  the  contrary,  criticism  has  been 
rather  based  upon  a  possible  tendency  towards  unjustified 
optimism. 

It  may  be  useful  to  remember  that  the  wages  were  primarily 
gathered  from  large  establishments,  and  include  a  larger  pro- 
portion of  union  workmen  than  the  entire  working  class  of 
the  United  States  can  boast  of — that  on  the  other  hand,  the 
cost  of  food  may  not  be  a  sufficient  measure  of  the  increased 
cost  of  living. 

But,  accepting  these  figures  at  their  face  value,  as  the  best 
available  material  on  the  subject,  the  trend  of  wages  per  hour 


38  SOCIAL  INSURANCE 

is  fairly  encouraging,  showing  a  rise  of  some  28  to  30$  within 
seventeen  to  eighteen  years.  But  this  increase  is  mitigated  by 
two  powerful  factors.  One  is  the  slight  decline  in  the  average 
hours  of  labor — entirely  too  slight  to  meet  the  increased  pro- 
ductivity and  intensification  of  labor — but  real  nevertheless, 
so  that  the  increase  in  the  weekly  wages  is  only  21$.  The 
other  still  more  powerful  factor  is  the  increased  cost  of  food. 
A  comparison  of  columns  3  and  4  of  the  table  at  once  demon- 
strates the  close  harmony  between  the  fluctuations  of  wages 
and  cost  of  living.  When  modified  by  this  factor,  the  real 
increase  of  the  purchasing  power  of  hourly  wages  declines  to 
only  8  to  9$  during  the  seventeen  years,  and  the  increase  of 
real  weekly  wages — the  only  thing  of  consequence  to  the  wage- 
worker 's  family — becomes  so  small  that  it  can  hardly  be 
noticed  with  the  naked  eye.  The  obvious  conclusion  is  that 
wages  have  been  practically  stationary  within  the  two  decades 
on  the  boundary  line  of  the  twentieth  century. 

But  the  figures  in  the  last  column  show  many  strong  fluctua- 
tions. Rises  alternate  with  declines,  and  the  tendency  one 
way  or  the  other  is  not  very  noticeable.  To  get  at  that  tend- 
ency, the  well-known  statistical  method  of  "  smoothing  the 
curve  ' '  may  be  utilized.  That  is,  instead  of  annual  figures  the 
five  years'  averages  for  consecutive  years'  periods  (1890-1894, 
1891-1895,  1892-1896,  etc.)  may  be  taken.  In  this  way  the 
following  information  is  obtained: 

Relative  average  Relative  average 

Five  years'  wage   for  the     Five  years'  wage  for  the 

period  five  years  period  five  years 

1890—1894  98.0  1897—1901  101.9 

1891—1895  98.4  1898—1902  101.0 

1892—1896  99.8  1899—1903  101.1 

1893—1897  100.5  1900—1904  100.8 

1894—1898  101.4  1901—1905  100.8 

1895—1899  102.1  1902—1906  100.7 

1896—1900  102.6  1903—1907  100.8 

If  the  columns  of  figures  given  above  were  plotted  as  a  curve, 
one  would  immediately  recognize  that  since  the  five-annual 
period  of  1896-1900,  the  average  has  been  steadily,  though 
slowly,  declining.  Were  it  possible  to  extend  this  analysis  up  to 
the  present  time,  there  can  scarcely  be  any  doubt  that  the  ter- 
rible results  of  the  crisis  during  1908  and  the  general  trade  de- 
pression of  1911  would  not  improve  matters,  for  prices  of 


NEED  OF  SOCIAL  INSURANCE  IN  U,  S.         39 

food  have  risen  some  25$  in  these  five  years,  and  it  is  doubtful 
whether  wages  have  even  adjusted  themselves  to  this  rise  in 
prices.  Surely  there  is  nothing  in  these  official  figures  to. 
justify  the  complacent  conviction  that  the  economic  condi- 
tion of  the  working  class  is  improving  all  the  time.  Even 
if  the  period  1903-07  be  compared  with  the  terrible  crisis 
period  of  1893-1897,  the  total  results  of  a  decade  of  unex- 
ampled trade  expansion  for  the  wage-workers  amount  to  the 
magnificent  amount  of  three-tenths  of  one  per  cent. 

And  these  are  the  facts  in  the  face  of  an  inevitable  tendency 
of  the  working  class  to  lead  a  better  life.  Perhaps  one  of  the 
most  antisocial  tendencies  that  have  crept  into  modern  Ameri- 
can economic  writing,  is  the  tendency,  not  even  original  with 
scientific  economists,  but  initiated  by  an  American  "  captain 
of  industry,"  J.  J.  Hill,  to  explain  the  modern  economic 
difficulties,  not  by  the  "  high  cost  of  living  "  but  by  the  "  cost 
of  high  living. ' '  One  may  question  the  good  taste  of  our  multi- 
millionaires in  accusing  the  American  wage- worker  of  a  tend- 
ency towards  high  living  in  face  of  the  wage  statistics  quoted 
t  above.  Of  course  it  would  be  quite  inconceivable  that  all  the 
material  progress,  of  which  the  American  people  is  so  proud, 
should  not  have  created  in  the  millions  of  wage-workers  a 
desire  to  lead  a  better  and  cleaner  life,  for  some  share  in  the 
fruits  of  our  technical  progress. 

As  a  result,  we  are  face  to  face  with  the  significant  fact, 
that  a  surplus  in  the  workingman  's  budget  is  becoming  a  very 
rare  phenomenon.  According  to  the  investigation  of  the  U.  S. 
Bureau  of  Labor,  carried  on  over  ten  years  ago,  and  embracing 
25,440  families,  12,816  families,  or  a  little  over  one-half,  had 
a  surplus  at  the  end  of  the  year.  The  average  surplus  was 
quite  high — $120.84.  But  the  fact  that  among  the  11,156  nor- 
mal families  with  only  one  worker  the  wage  surplus  was  only 
$33.18  is  significant  as  explaining  the  origin  of  the  surplus. 
Then  again,  we  find  that  a  substantial  surplus  in  these  families 
was  only  possible  in  the  absence  of  more  than  two  children. 
Thus  the  average  surplus  of 

2124  families  with  0  children  was $60.72 

2579       "            "    1  child        "     42.03 

2700      "            "    2  children  "     30.20 

1973      "            "    3       "         "     9.86 

1248      "            "    4       "         " 2.39 

532      "            "    5       "         "                                   6.40 


40  SOCIAL  INSURANCE 

Later,  smaller  but  more  detailed  investigations  have  given 
much  less  satisfactory  results.  An  investigation  of  200  fami- 
lies by  Miss  L.  B.  Moore  in  1907,  showed  that  of  these  only 
47,  or  23.5$  had  any  surplus,  98  families,  or  nearly  one-half, 
closed  their  budget  even,  and  55  had  a  deficit  to  show  for 
their  year's  work.  According  to  the  data  collected  by  Miss 
Moore,  a  substantial  surplus  in  a  workingman  's  family  appears 
only  when  the  income  exceeds  $1,000. 

Moreover,  the  surplus  depends  as  much  upon  the  small  num- 
ber of  children  as  upon  a  larger  income.  Thus,  of  the  200 
families  studied,  only  29  had  a  surplus  of  $50  or  over  during 
the  year.  Of  these  29,  17  had  an  income  of  over  $1,000,  and 
5  families  with  incomes  of  $700  to  $1,000  had  only  2  children, 
leaving  only  7  families  with  4  children  or  over  and  an  income 
of  less  than  $1,000  who  were  able  to  save  $50. 

Professor  Chapin  arrives  at  similar  results:  out  of  391 
families  only  143,  or  about  36$,  show  a  surplus. 

Families 

Number  of  showing 

Income  families  a  surplus  Percentage 

than  $600 25  5  20 

$600—  700  72  20  28 

700—  800  79  26  33 

800—  900  73  35  48 

900—1000  63  22  35 

1000—1100  31  13  42 

1100—1200  18  7  39 

1200  and  over  .  30  15  50 


391       143        36 

It  was  thought  desirable  to  pile  up  these  dry  and  dreary 
figures  to  demonstrate  the  fact,  that  a  substantial  surplus 
of  some  $50  per  annum,  or  $1  per  week,  is  not  at  all  a  common 
occurrence  among  the  wage-workers,  that  it  presupposes  a 
level  of  income  such  as  only  a  small  proportion  of  the  wage- 
working  class  possesses.  Of  course  this  pessimistic  conclusion 
will  be  disputed.  There  remains  the  last  old  reliable  argu- 
ment of  universal  prosperity  in  this  country,  an  argument 
often  tried  and  never  found  wanting — that  of  the  increasing 
savings  bank  deposits.  It  is  a  source  of  great  satisfaction 
to  many  to  point  with  pride  at  the  large  number  of  millions 
of  these  deposits  rolling  up  from  year  to  year, — only  50 


NEED  OF  SOCIAL  INSURANCE  IN  U,  S.         41 

millions  in  1851,  100  millions  in  1857,  1,000  millions  in  1883, 
2,000  millions  in  1898,  nearly  3,000  millions  in  1905,  4,070 
millions  in  1910,  and  4,212  millions  in  1911.  In  absence  of  any 
evidence  to  the  contrary,  it  is  easy  to  assume  that  they  repre- 
sent accumulated  wealth  of  the  working  class,  and  the  average 
deposit  of  $1,445.20  in  1910  appears  very  satisfactory. 

This  statement  looks  so  imposing  that  the  claim  demands 
some  consideration.  Of  course  we  do  not  at  all  know  to  whom 
these  millions  really  belong,  how  much  of  it  really  represents 
savings  of  workingmen.  Unfortunately,  very  few  states  have 
ever  undertaken  to  study  this  problem,  and  our  Federal  Bank- 
ing reports  are  satisfied  with  the  presentation  of  imposing  or 
staggering  totals.  But  at  least  one  state,  Connecticut,  has 
published  some  interesting  information  bearing  on  this  ques- 
tion. While  the  depositors  are  not  classified  according  to 
their  economic  status,  but  only  according  to  the  size  of  their 
deposits,  even  such  a  classification  is  extremely  illuminating; 
and  the  information,  especially  valuable  because  it  is  available 
for  a  continuous  period  of  thirty  years,  is  presented  in  the 
following  two  tables.  For  an  expert  statistician  they  tell  the 
whole  story  eloquently  enough,  but  for  the  advantage  of 
the  lay  reader,  who  does  not  take  kindly  to  statistical  tables, 
the  interesting  information  is  summarized. 

Now  let  us  see  what  story  these  dry  tables  are  telling  us. 
Within  thirty  years,  the  number  of  depositors  has  increased 
nearly  200$.  The  deposits  have  increased  nearly  300$.  The 
average  deposit  has  grown  from  $360  to  $486.  Can  a  picture  be 
made  more  optimistic  ?  But  how  rapidly  the  picture  changes 
when  the  same  figures  are  scrutinized  a  little  more  carefully. 
We  find  that  of  all  the  depositors,  85.3$  had  less  than  $1,000 
each.  It  cannot  be  doubted  that  almost  all  workingmen 's  de- 
posits belong  to  this  class.  9.7$  had  from  $1,000  to  $2,000, 
and  5$  more  than  $2,000;  (1/10$  even  more  than  $10,000). 
The  majority  of  depositors  may  be  workmen,  for  all  we  know. 
But  of  the  total  deposits  only  a  little  over  one-third  belonged 
to  the  small  deposit  group;  over  one-fourth  to  those  having 
from  $1,000  to  $2,000,  and  nearly  two-fifths  to  depositors  hav- 
ing over  $2,000  each,  so  that,  at  best,  the  workingmen 's  deposits 
may  represent  only  one-third  of  the  total  deposits. 

Thus  the  general  average  of  $485  means  very  little,  because 
it  is  due  to  thousands  of  middle-class  depositors  who  have 


42 


SOCIAL  INSURANCE 


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NEED  OF  SOCIAL  INSURANCE  IN  U.  S.         43 

from  $2,000  to  $10,000,  and  to  hundreds  having  over  $10,000 
each. 

But  the  statistical  data  become  especially  interesting  when 
comparisons  between  1880  and  1910  are  made.  While  the  num- 
ber of  depositors  has  nearly  trebled,  those  with  deposits  of 
over  $2,000  have  increased  over  500$.  $215,000,000  additional 
have  been  deposited  with  savings  banks  in  these  thirty  years, 
but  of  this,  43.5$,  or  nearly  $94,000,000,  was  deposited  by  the 
richest  group,  among  whom  there  were  very  few,  if  any,  work- 
ingmen.  Fifty-two  millions  were  contributed  by  the  middle 
classes.  The  workingmen  could  at  most  add  seventy  millions, 
and  not  two  hundred  and  fifteen  millions.  For  this  group 
the  average  deposit  has  increased  from  $190  to  $202,  or  some 
7$,  while  for  the  rich  class  the  average  deposit  has  increased 
22.9$.  As  a  result  of  all  this,  the  lower  classes'  share  in 
savings  banks  deposits  has  decreased  from  46.5$  to  35.9$,  that 
of  the  richest  class  increased  from  19.9$  to  37.5$.  In  short, 
the  exhilarating  effect  of  savings  deposits  figures  upon  our 
optimism  becomes  considerably  subdued. 

Of  course  the  fact  remains  that  even  in  the  group  of  de- 
positors with  less  than  $1,000  apiece,  the  increase  of  depositors 
and  deposits  has  been  remarkable.  In  estimating  the  import 
of  this  statement,  a  few  other  facts  and  factors  must  be  con- 
sidered. To  begin  with,  population  in  Connecticut  has  within 
the  same  thirty  years  increased  from  622,700  to  1,114,756,  or 
nearly  80$.  Proportionately,  the  increase  in  depositors  has 
not  been  so  very  great — from  325  per  thousand  in  1880  to  532, 
or  only  64$,  and  |he  total  amount  of  deposits  in  about  the 
same  proportions.  And  inasmuch  as  the  average  savings  of  the 
wage-working  class  have  not  increased,  while  the  increased 
price  level  has  reduced  the  purchasing  value  of  money  by  40 
or  50$  at  least,  the  actual  savings  have  evidently  decreased 
materially.  Moreover,  there  can  be  no  doubt,  that  among  the 
middle  classes  using  the  savings  banks  for  their  fortunes,  there 
must  be  a  large  amount  of  duplication  of  accounts,  while,  in  a 
wage-worker's  family,  more  than  one  account  would  be  the 
exception.  The  long  and  the  short  of  it  is  that  the  increased 
savings  of  the  wage-workers  are  a  myth  without  much  founda- 
tion in  fact  even  to  justify  it. 

To  sum  up : 

(1)  From  two-thirds   to  three-fourths  of  all  productive 


44  SOCIAL  INSURANCE 

workers  in  the  United  States  depend  upon  wages  or  small 
salaries  for  their  existence. 

(2)  From  four-fifths  to  nine-tenths  of  the  wage-workers 
receive  wages  which  are  insufficient  to  meet  the  cost  of  a  normal 
standard  of  health  and  efficiency  for  a  family,  and  about  one- 
half  receive  very  much  less  than  that. 

(3)  If  a  certain  proportion  of  wage-workers'  families  suc- 
ceed in  attaining  such  a  standard,  it  is  made  possible  only 
by  the  presence  of  more  than  one  worker  in  the  family. 

(4)  This  condition,  however,  can  only  be  temporary  in  the 
history  of  any  workingman's  family. 

(5)  The  increase  in  the  standard  of  wages  is  barely  suffi- 
cient to  meet  the  increased  cost  of  living. 

(6)  An  annual  surplus  in  the  workingman's  budget  is  a 
very  rare  thing,  and  is  very  small. 

(7)  The  growth  of  savings  bank  deposits  in  the  United  States 
is  not  sufficient  evidence  of  the  ability  of  the  American  work- 
ingmen  to  make  substantial  savings.    A  large  proportion  of 
these  savings  belong  to  other  classes  of  population,  and  in  so 
far  as  information  is  available,  the  average  workingman's  de- 
posit is  very  small. 

(8)  The  analysis  of  the  economic  status  of  the  American 
wage-worker  does  not  disclose  his  ability  to  cope  with  the 
various  economic  emergencies  without  outside  assistance. 

It  may  be  argued  that  all  this  evidence  of  the  unsatisfactory 
economic  condition  of  the  working  class,  if  correct,  proves 
rather  the  necessity  of  a  higher  wage  level  than  of  a  policy 
of  social  insurance.  And  it  is  surely  not  the  intention  of  the 
writer  to  deny  the  necessity  for  higher  wages.  But  this  ob- 
jection, often  made,  is  based  upon  a  misconception  of  the 
direct  aims  of  social  insurance.  It  does  not  deal  with  the 
normal  standard  of  workingmen's  life,  except  indirectly,  and 
in  so  far  as  the  normal  standard  of  wages,  and  the  standard 
of  living  depending  upon  wages,  are  unsatisfactory,  the  cor- 
rective measures  are  much  broader  than  anything  social  in- 
surance can  offer. 

It  is  the  direct  object  of  social  insurance  to  protect  this 
standard  from  the  onslaught  upon  it  by  various  physical  and 
economic  dangers,  though  it  goes  without  saying  that  by  this 
amount  of  protection  the  general  standard  is  upheld  and  its 
improvement  facilitated.  But  the  economic  and  statistical 


NEED  OF  SOCIAL  INSURANCE  IN  U,  S.         45 

evidence  produced  seems  to  force  the  conclusion,  that  if  the 
general  status  of  the  wage-worker's  life  is  much  below  the 
standard  of  physiological  necessity  and  economic  efficiency, 
surely  the  wage-worker  is  seldom  in  condition  to  withstand  the 
attack  of  any  cause  which  produces  an  interruption  of  income. 
In  other  words,  the  condition  exists  which  has  been  responsible 
for  the  growth  of  the  social  insurance  movement  in  all  indus- 
trial countries. 


PAET  11 
INSURANCE  AGAINST  INDUSTRIAL  ACCIDENTS 


CHAPTER  IV 
INDUSTRIAL  ACCIDENTS 

CONSIDERING  the  present  attitude  of  American  public  opin- 
ion, it  may  be  best  to  begin  the  systematic  study  of  social 
insurance  with  the  problem  of  industrial  accidents,  though  the 
danger  of  industrial  accidents  may  not  be  the  most  serious  of 
the  economic  dangers  confronting  the  wage-earners,  and 
though  historically  various  forms  of  sick-insurance  and  old- 
age  relief  preceded  accident  insurance. 

The  problem  has  a  direct  bearing  upon  American  social 
and  economic  life  because  of  its  timeliness  in  view  of  the  un- 
precedented, phenomenal  growth  of  the  compensation  move- 
ment in  the  United  States,  while  other  problems,  such  as  sick- 
insurance,  may  remain  largely  academic  for  some  time  to 
come. 

Before  we  are  ready  to  consider  the  various  remedial  meas- 
ures, we  must  learn  of  the  nature,  symptoms,  and  causation 
of  the  disease.  It  will  be  necessary,  therefore,  to  devote  some 
pages  to  the  study  of  industrial  accidents  themselves. 

What  is  an  industrial  accident?  The  temptation  is  great 
to  answer  this  query  in  a  somewhat  flippant  way:  "  An  in- 
dustrial accident  is  not  an  accident  at  all."  Indeed,  there 
is  nothing  fortuitous  or  unexpected  about  them,  at  least, 
when  taken  as  a  whole.  Rather  is  it  a  definite  and  constant 
characteristic  of  modern  industry,  subject  to  well-recognized 
rules  and  laws.  It  is  in  unconscious  recognition  of  this,  that 
in  several  European  acts,  and  also  in  some  American  acts, 
the  word  "  injury  "  is  gradually  beginning  to  supplant  the 
word  "  accident." 

For  the  number  of  industrial  accidents  is  both  tremendously 
large  and  constant,  showing  definite  conditions  responsible  for 
them.  In  many  industries,  at  least,  the  danger  of  a  violent 
injury  is  so  great  that  only  the  inherent  optimism  of  the 
wage-worker  may  accustom  him  to  that  danger;  and  thou- 
sands of  wives  of  coal-miners,  railroad  employees,  structural 

49 


50  SOCIAL  INSURANCE 

iron-workers,  and  the  like  must  have  a  constant  fear  when 
seeing  the  husband  go  to  work  in  the  morning,  that  they  will 
see  him  dead  or  maimed  in  the  evening. 

Few  people  in  the  United  States  have  any  conception  how 
enormous  is  the  annual  number  of  accidental  injuries  to  the 
wage-working  population.  American  information  on  the  sub- 
ject is  as  yet  scant  and  unsatisfactory.  Only  within  the  last 
few  years — when  the  interest  has  grown — have  a  few  states 
undertaken  to  investigate  the  problem  and  demand  reports  of 
accidents  occurring.  In  Europe,  accident  statistics  is,  and 
has  been  for  many  years,  a  definite  and  important  branch  of 
statistical  and  social  science.  It  will  be  necessary,  therefore, 
to  rely  primarily  upon  these  European  data  in  the  follow- 
ing pages : 

ANNUAL  NUMBER  OF  INDUSTRIAL  ACCIDENTS  IN  THE  MAIN 
EUROPEAN  COUNTRIES  x 

Accidents — 
Country  Year  Total  number  Fatal 

Austria 1909  129,186  1252 

Belgium    1908  159,499  510 

Denmark    1911  3,869  207 

France    1909  434,450  3101 

Germany    1910  672,961  8857 

Great  Britain    1910  167,653  4704 

Italy    1910  227,768  759 

Norway    1909  5,909  136 

Russia    1906  212,167  1834 

Spain    1909  28,944  210 

Sweden  1906  15,041  249 

The  imposing  fact  of  this  table  is  that  in  eleven  European 
countries  annually  some  2,000,000  industrial  accidents  occur, 
and  of  these  over  22,000  are  fatal. 

One  must  not  assume  that  these  figures  alone  offer  a  suffi- 
cient basis  for  comparison  between  one  country  and  another. 
Each  one  of  the  figures  shown  in  this  table  is  subject  to  a 
great  many  qualifications.  They  are  given  mainly  for  pur- 
poses of  suggestion  and  illustration.  But  for  a  careful  study, 
each  country's  statistics  must  be  independently  analyzed. 
There  is  a  vast  difference  in  the  methods  of  accident  statistics 

1  Compiled  partly  from  original  sources,  partly  from  information  given 
in  the  24th  Annual  Report  of  the  United  States  Commissioner  of  Labor. 


INDUSTRIAL  ACCIDENTS  51 

of  various  countries.  Statistical  reports  of  various  countries 
will  differ  as  to  the  groups  of  industries  included,  often  de- 
pending upon,  the  extent  of  the  compensation  law  in  connec- 
tion with  which  statistics  are  gathered.  Thus,  for  instance, 
the  agricultural  industry  is  included  in  German  data,  but  not 
in  that  of  any  other  country. 

Secondly,  the  comparison  between  one  country  and  another 
is  not  altogether  fair,  because  of  the  very  great  difference  in 
the  character  of  industries.  Where  metal-working  industries 
or  mining  predominate,  as  in  Germany,  the  accidents 
will  be  more  numerous  and  of  greater  severity,  than  where 
textiles  and  fancy  articles  are  the  leading  branches  of  in- 
dustry. 

In  the  third  place,  countries  will  differ  in  the  care  with 
which  accidents  are  reported.  It  is  a  commonplace  among 
experts  on  accident  statistics  that  the  accuracy  of  accident 
reports  depends  upon  the  degree  of  thoroughness  of  accident 
compensation  laws,  and  that  where  accidents  are  not  com- 
pensated, it  is  almost  impossible  to  obtain  satisfactory  acci- 
dent reports. 

And  finally  the  statistical  reports  of  various  countries  will 
remain  uncomparable  for  the  reason  that  the  definition  of 
what  may  be  classified  as  an  accident  or  accidental  injury 
vastly  differs  in  various  reports.  In  industrial  life,  as  in 
every-day  life,  thousands  of  mishaps  may  occur  which  may  be 
technically  classified  as  injuries,  and  yet  may  leave  no  injuri- 
ous effects  worth  mentioning.  Some  may  and  some  may  not 
require  attention  of  a  physician,  but  this  evidently  is  not  a 
sufficient  basis  for  judgment.  A  particle  of  dust  has  lodged 
itself  in  the  workman's  eye.  It  may  be  immediately  removed 
and  be  as  readily  forgotten,  or  it  may  cause  discomfort  for 
an  afternoon  and  work  its  way  out.  But,  on  the  other  hand, 
it  may  cause  a  violent  inflammation  and  a  subsequent  loss  of 
vision.  An  ordinary  abrasion  of  the  skin  in  the  vast  majority 
of  cases  leads  to  no  consequences,  but  it  may  cause  general 
blood  poisoning.  Shall,  therefore,  all  foreign  bodies  in  the 
eye  and  all  skin  abrasions  be  counted  as  accidents?  Evi- 
dently some  objective  basis  for  judgment  must  be  agreed 
upon,  and  it  is  usually  found  in  a  certain  minimum  duration 
of  disability  caused  by  accidental  injury.  Under  the  French 
accident  reporting  system,  only  such  disabilities  as  have 


52  SOCIAL  INSURANCE 

caused  loss  of  time  for  at  least  four  days  are  counted.  In 
Russia  the  mimimum  is  three  days.  Under  the  United  States 
Government  Employees'  Compensation  Act  of  May  30,  1908, 
only  such  injuries  were  reported  as  have  laid  off  the  injured 
employee  for  at  least  twenty-four  hours. 

But  when  all  these  qualifications  have  been  taken  into  con- 
sideration, it  remains  true  that  the  number  of  accidental  in- 
juries is  enormous,  and  runs  into  the  millions.  Only  in  that 
sense  are  they  accidental  in  which  it  is  an  accident  for  a  soldier 
on  a  firing  line  of  a  desperate  battle  to  be  wounded  or  killed. 
No  one  could  tell  in  advance  which  one  of  the  brave  boys  who 
marched  down  to  Gettysburg  would  return  and  who  would 
remain  on  the  battlefield.  But  whoever  understood  the  des- 
perate conflict  between  the  opposing  forces  knew  full  well  that 
the  God  of  War  would  have  a  plentiful  harvest  on  that  field. 
Even  thus,  no  one  of  the  workingmen  can  tell  whether  he  or 
his  neighbor  will  be  the  next  victim,  but  it  is  quite  certain 
that  year  in  and  year  out  the  number  of  killed  or  injured  will 
be  large. 

More  than  that:  we  can  foretell  with  a  much  greater  de- 
gree of  certainty  the  number  of  victims  of  industrial  life  than 
of  military  life;  for  one  thing,  statistics  of  industrial  acci- 
dents are  in  a  much  better  condition.  We  know  what  propor- 
tion of  the  army  of  the  wage-workers  must  be  fatally  or  other- 
wise injured,  for  the  rate  varies  but  slightly  from  year  to  year, 
if  statistics  are  properly  kept. 

As  compared  with  this  comprehensive  development  acci- 
dent statistics  in  the  United  States  is  in  its  infancy.  We  do 
not  know  the  number  of  industrial  accidents  occurring  in 
this  country  which  might  be  compared  with  the  European 
figures.  As  yet  only  fragmentary  information  and  more  or 
less  arbitrary  estimates  are  available  for  the  United  States. 
We  know  enough,  however,  to  be  convinced  that  the  number 
of  accidents  and  the  accident  frequency  are  vastly  greater 
than  in  any  European  country. 

In  absence  of  such  reliable  statistics  as  most  European 
countries  possess,  it  is  worth  while  to  review  some  of  the  most 
important  data  obtainable,  so  as  to  draw  deductions  and 
formulate  estimates  which  will  not  appear  as  vague  guesses. 

The  Census  Report  of  Mortality  Statistics  for  1908  gives 
the  total  number  of  deaths  due  to  violence  as  52,421.  When 


INDUSTRIAL  ACCIDENTS  53 

suicides,  homicides,  injuries  at  birth,  and  similar  classes 
altogether  outside  of  the  field  of  industrial  accidents  are  de- 
ducted, this  leaves  37,942  accidents,  distributed  according  to 
cause  as  follows: 


CAUSES  OF  FATAL  ACCIDENTS  IN  THE  REGISTRATION  AREA  OF  THE 
UNITED  STATES,  1908 

Fractures    722  Injuries  by  machinery  ....     901 

Dislocations    12  Injuries      in      mills      and 

Burns  and  scalds 3688          quarries   1917 

Burning  by  corrosive  sub-  Railroad  accidents 6080 

stances   16      Street  car  injuries 1696 

Heat  and  sunstroke 829  Injuries     by     vehicles     or 

Cold  and  freezing 227         horses 1924 

Lightning    161      Automobile  accidents 393 

Drowning    4677      Other  accidental 8804 

Inhalation     of     poisonous  Suffocation    708 

gases 1688  Other  external  violence  . .     861 

Other  accidental  poisonings  1652 

Accidental  gunshot  wounds    986  37,942 

This  is  quite  a  formidable  list.  As  the  total  number  of 
deaths  reported  was  691,574,  it  follows  that  considerably 
over  5$  died  from  the  violent  causes  enumerated,  and  if  sui- 
cides, homicides,  etc.,  are  included,  the  proportion  is  near 
7  1-2$,  or  about  one  in  thirteen. 

This,  however,  is  by  far  not  a  complete  list.  The  figures 
quoted  refer  only  to  the  so-called  "  Registration  Area,"  i.e., 
that  part  of  the  United  States  where  reasonably  accurate 
records  of  death  are  kept.  In  1908  the  total  population  of 
this  "  Registration  Area  "  (which  included  17  states  and 
cities  in  additional  21  states),  was  a  little  over  45,000,000, 
or  just  one-half  of  the  population  of  the  United  States.  The 
total  number  of  fatal  accidents  from  causes  enumerated  above 
in  the  United  States  must  be  about  75,000. 

Not  all  these  75,000  fatal  accidents  are  due  to  industrial 
causes.  Turning  to  statistics  of  mortality  among  persons  en- 
gaged in  gainful  occupations,  altogether  222,412  deaths  were 
reported  among  these  persons,  and  of  this  number  22,407,  or 
over  10$,  were  due  to  accidental  causes.  Applying  the  same 
rule,  there  were  some  45,000  accidental  deaths  among  occu- 
pied persons  in  the  United  States  in  1910.  Yet  this  is  rather 
an  underestimate  than  an  overestimate.  A  vast  army  of 


54  SOCIAL  INSURANCE 

women  working  in  their  homes  and  on  the  farms  is  not 
counted  among  persons  gainfully  employed,  when  they  work 
in  their  own  homes  or  on  their  husband's  farms.  And  yet  if 
there  were  416  fatal  accidents  among  servants  (or  about  900 
for  the  whole  of  the  United  States),  the  number  of  similar 
accidents  among  housewives,  who  are  perhaps  fifteen  times 
as  numerous  as  the  servants,  must  have  equaled  ten  or  fifteen 
times  as  many,  or  from  9,000  to  13,000. 

But  waving  that  aside,  how  many  of  these  45,000  fatal 
accidents  may  properly  be  classified  as  industrial  accidents? 
The  large  number  of  fatalities  due  to  railroad  or  street-car 
accidents,  if  the  victims  are  the  passengers  or  outsiders,  are 
not  classified  as  industrial  accidents — and  yet  they  are  the 
direct  result  of  modern  transportation  industry.  Yet  the 
definition  of  an  industrial  accident  is  usually  a  narrower  one, 
meaning  an  accident  occurring  while  the  injured  person  is  at 
work,  and  due  to  that  work.  Following  the  same  line  of  rea- 
soning, the  well-known  statistician,  F.  L.  Hoffman,  concludes : 

"It  is  probably  safe  to  estimate  that  half  of  the  accidents  are 
more  or  less  the  immediate  result  of  dangerous  industries  and 
trades."  2 


This  estimate  appears  to  the  writer  as  unnecessarily  con- 
servative. Comparatively  few  fatal  accidents  occur  while 
the  victim  is  asleep.  It  follows,  then,  that  of  the  sixteen  active 
hours  throughout  the  day,  at  least  one-half  and  often  up  to 
five-eighths  or  three-fourths  of  the  time  of  the  productive 
worker  is  spent  at  his  trade;  and  as  the  hazard  must  neces- 
sarily be  greater  at  this  time  than  when  at  home,  it  is  safe 
to  assume  that  a  much  larger  share  than  one-half,  probably  no 
less  than  two-thirds  of  all  accidents,  or  about  30,000,  are  due 
to  industrial  causes,  or  considerably  more  (over  30$)  than 
throughout  industrial  Europe.  The  conclusion  is  surely  stag- 
gering. 

Still  more  difficult  is  any  estimate  concerning  non-fatal  ac- 
cidents. One  way  of  arriving  at  the  total  number  of  indus- 
trial accidents  is  to  assume  a  certain  relation  between  fatal 
and  non-fatal  accidents.  One  is  loath  to  assume  the  same  pro- 

2  "  Industrial  Accidents/'  by  F.  L.  Hoffman.  Bulletin  of  the  U.  S. 
Bureau  of  Labor,  No.  78;  Sept.,  1908;  p.  418. 


INDUSTRIAL  ACCIDENTS  55 

portion  as  is  found  in  Europe  (2,000,000  accidents  for  22,000 
fatal  ones,  or  90  accidents  for  each  fatal  one),  for  that  would 
presuppose  literally  millions  (about  2,700,000)  industrial  ac- 
cidents occurring  annually  in  the  United  States.  Yet  this 
estimate  cannot  be  very  far  from  the  truth.  Mr.  Hoffman 
makes  a  guess  at  two  millions.  In  Minnesota,  when  a  pains- 
taking investigation  was  made  covering  the  twelve  months 
ending  July  31,  1910,  there  were  recorded  10,463  accidents, 
and  342  fatal  ones,  or  30  accidents  for  each  fatality.  But 
no  accident  statistics  can  expect  to  be  complete  within  the 
first  year.  In  Wisconsin  out  of  7,186  accidents  reported  for 
1905-1906,  there  were  204  fatal  ones,  or  36  accidents  for  each 
fatality.  Somewhere  between  one  and  two  millions  lies  the 
total  number  of  industrial  accidents  in  this  country. 

In  only  one  line  of  industrial  activity  are  the  accidents  at 
present  very  carefully  reported — that  of  railroading.  Until 
July,  1910,  only  accidents  directly  due  to  train  movement  were 
reported,  and  they  reached,  for  the  fiscal  year  1910,  some 
90,000.  During  the  next  year,  however  (1910-1911),  all  acci- 
dents in  the  railroad  industry  (including  the  shop  workmen) 
were  required  to  be  reported,  and  for  that  year  the  total 
reached  10,396  fatal  and  150,159  non-fatal  ones,  a  total  of 
160,555.  Even  after  the  passengers  and  the  many  tres- 
passers are  eliminated,  we  obtain  a  total  of  3,602  employees 
killed  and  126,039  injured  in  one  year.  The  number  of  per- 
sons employed  by  the  railroads  reached  1,648,033,  which 
gives  an  injured  employee  for  every  13  persons  employed. 
And  yet,  contrary  to  popular  impression,  railroading  is  not 
the  most  hazardous  of  industries  known.  In  a  great  many 
branches  of  the  steel  industry,  in  mining,  in  heavy  construc- 
tion such  as  tunneling  and  shaft-driving,  the  accidents  are 
still  more  frequent. 

This  brings  us  to  the  next  consideration  in  support  of  the 
statement  that  industrial  accidents  are  not  accidents  at  all, 
but  normal  results  of  modern  industry — the  definite  variation 
in  accident  frequency,  or  the  accident  rate,  as  it  is  technically 
known,  between  one  industry  and  another.  While  it  may 
differ  slightly  from  year  to  year,  this  variation  is  insignificant 
as  compared  with  the  variation  between  industries.  Here 
again  we  must  turn  to  European  statistics  for  careful  reports. 
Comparisons  between  different  countries  are  again  difficult 


56 


SOCIAL  INSURANCE 


for  the  reasons  given  above,  as  well  as  because  of  the  difference 
in  classification  of  industries,  but  a  few  illustrations  may  be 
quoted  here. 

ACCIDENT  RATE  PER  THOUSAND  EMPLOYEES  IN  AUSTRIA  IN  1907. 
(ACCIDENTS  CAUSING  AT  LEAST  FOUR  WEEKS'  DISABILITY  OR 
DEATH) 


Smelting    45.1 

Stone  quarries   40 . 5 

Wood-working    35 . 7 

Machinery  35 . 0 

Land  transportation   (not 

railroads)     33.5 

Vehicles,  manufacture  of.  32.7 

Building  trades 30 . 0 

Oils,  manufacture  of  ....  29 . 4 
Storage  establishments  . .  27 . 2 
Water  transportation   ...  26 . 6 
Tar   and   rosin   manufac- 
ture      25 . 5 

Pits,  digging  of 25.3 

Construction   23 . 9 

Iron  and  steel 23.9 

Scientific  instruments  ...  20.7 

Beverages    20 . 6 

Railways    20.4 

Agricultural    establish- 
ments using  power  ....  20 . 2 

Flour  mills  19.2 

Manures  and  fertilizers  ...18.7 

Stone- working    18 . 6 

Leather    16.2 

Paper 16 . 2 

Heating  and  lighting  ma- 
terials   16.2 

Subsidiary  building  trade  16.1 


Firearms   15 . 6 

Food  products   15.5 

Chemical  industry 15 . 0 

Heating,      lighting,      and 

steel    14.8 

Metals  other  than  iron  ..  13.7 

Colors,  dyes,  etc 13 . 0 

Cleaning  of  buildings  ...  12 . 3 

Rubber 12.2 

Musical  instruments 11 . 9 

Earthenware   10 . 9 

Paper  products 10 . 4 

Bleaching,   dyeing 9.7 

Glass-working    8.7 

Baskets,  brushes,  etc.   ...  8.0 

Flax,  hemp,  etc.,  textiles  .  7.9 

Horn  products 7.5 

Wool    7.4 

Watches 7.4 

Cleaning    7.3 

Printing  and  publishing  .  6.2 

Cotton  manufacture   ....  5.8 

Precious  metals 4.9 

Clothing 3.8 

Leather  products 3.4 

Silk    2.5 

Theatrical  establishments.  2.5 

Knitting,  embroidery  ....  2.3 

Tobacco    ....  1.1 


Taking  another  year,  or  an  average  of  many  years,  the  order 
may  vary.  The  average  for  all  industries  was  18.4  per  thou- 
sand because  only  accidents  causing  injuries  of  over  four 
weeks'  duration  are  included.  To  give  a  more  comprehen- 
sive picture,  similar  statements  will  be  quoted  from  France, 
where  all  accidents  causing  absence  from  work  for  over  three 
days  are  included.  While  the  classification  of  industries  is 
here  very  much  different,  the  order  will  be  found  pretty  much 
the  same. 


INDUSTRIAL  ACCIDENTS  57 

ACCIDENT  RATE  BY  INDUSTRIES  IN  FRANCE  (1908)  PER  THOUSAND 

EMPLOYEES 

Metallurgy    267      Wood-working    73 

Iron  mines 212  Stone  cutting  and  polishing  61 

Coal  mines   205      Food  products   58 

Building  and  construction  .  154      Hides  and  leather 34 

Chemical  industries 147  Printing  and  publishing  ...  33 

Metal-working    144  Straw,  feather,  and  hair  . .  25 

Earthen-  and  stoneware    . .  83  Metal  working,  precious   . .  22 

Miscellaneous  mines  (under-              Lapidary  work 16 

ground)    79      Textiles    34 

Quarries    79      Clothing 8 

Rubber  and  paper 74 

The  industries  presenting  the  greatest  danger  of  accidental 
injury  are  well  known.  Mining,  metallurgy,  metal-working, 
building  and  construction,  and  transportation  in  France 
claimed  about  two-thirds  of  all  industrial  accidents.  These 
are  exactly  the  industries  which  have  specially  developed  in 
the  United  States.  These  are  the  industries  which  are  either 
the  result  of  the  industrial  development  of  the  nineteenth  cen- 
tury or  have  been  largely  influenced  by  it.  In  France  these 
industrial  activities  claimed  about  one  and  one-half  million 
out  of  a  total  of  ten  million  wage-earners.  In  the  United 
States  these  industries  claimed  from  four  and  a  half  to  five 
million  out  of  the  eighteen  to  twenty  million  wage-workers. 

The  statistical  data  quoted  in  regard  to  some  of  the  Euro- 
pean countries  and  the  estimates  in  regard  to  the  United 
States  are  truly  staggering  in  their  magnitude. 

The  figures  are  bad  enough,  but  to  people  having  little 
familiarity  with  accident  statistics,  these  statements  sound 
much  worse  than  they  really  are,  and  the  cause  of  proper 
social  provision  for  victims  of  industrial  accidents  is  too  just 
to  have  need  of  any  exaggerations,  which  do  not  help  the  cause 
by  obscuring  the  truth.  It  is  necessary  to  remember,  there- 
fore, that  the  technical  definition  of  an  industrial  accident  and 
that  of  an  accidental  injury  are  much  broader  than  the  com- 
mon interpretation,  and  that  the  vast  majority  consist  of 
either  altogether  trivial  or  very  small  injuries  which  produce 
very  slight  pathological  or  economic  effects. 

There  are  two  bases  of  classification  of  the  results  of  in- 
juries— the  medical  and  the  economic  basis.  Only  in  one  detail 
do  these  two  classifications  agree,  viz.,  in  the  distinction  be- 


58  SOCIAL  INSURANCE 

tween  fatal  and  non-fatal  accidents.  But  even  though  the  dis- 
tinction seems  obvious  enough,  several  technical  difficulties  may 
arise.  When  is  an  accident  to  be  defined  as  a  fatal  one  ?  when 
the  workman  is  found  dead  under  the  machine  which  has 
crushed  him?  But  suppose  he  has  lived  a  day  and  then  suc- 
cumbed to  his  injuries  ?  Was  he  killed  or  injured  ?  And  sup- 
pose the  intervening  period  was  a  week,  or  a  month,  or  a 
year  ?  For  the  fracture  of  a  thigh  may  never  heal,  and  death 
may  ensue  after  many  months  of  lingering  illness  from  bed- 
sores. That  the  difficulty  is  a  real  one  is  evidenced  by  the 
fact  that,  under  some  compensation  laws,  the  injury  may  be 
adjudged  a  fatal  one  if  the  victim  dies  within  two  years  as  a 
result  of  the  injuries.  For  this  reason  alone  the  statistics  of 
different  countries  are  not  always  comparable.  In  the  latest 
German  statistical  report  the  accidents  of  1904  are  studied 
as  to  their  results  as  evidenced  by  1908,  i.e.,  four  years  later. 
And  the  percentage  of  fatal  accidents  was,  in  1905,  7.36$ ;  in 
1906,  7.81$;  in  1907,  7.96$;  and  in  1908,  8.06$.  This,  be  it 
understood,  refers  to  the  accidents  occur  ing  in  1904.  In 
other  words,  of  62,205  cases  occurring  in  1904,  4,975  had  died 
as  the  result  of  the  injuries  by  the  end  of  1905,  5,092  by  the 
end  of  1906,  5,190  by  the  end  of  1907,  and  5,256  by  the  end  of 
1908.  Compare  it  with  the  statistical  method  employed  by  the 
United  States  Interstate  Commerce  Commission  in  regard  to 
the  American  railroads,  where  only  "  accidents  to  persons 
resulting  in  immediate  death  or  death  within  twenty-four  hours 
from  the  time  the  accident  occurred  "  are  reported  in  the 
column  headed  ' '  fatally  injured  ' ' — and  one  gets  the  two  pos- 
sible extremes  of  statistical  accuracy.  There  is  no  doubt  that 
were  the  accident  statistics  of  American  railroads  compiled 
with  the  degree  of  accuracy  characterizing  German  statistics, 
the  result  would  be  a  material  increase  and  perhaps  a  doubling 
of  the  number  of  fatal  accidents. 

Beyond  this  question  of  fatalities,  the  two  methods  of  classi- 
fying results  of  injuries  are  vastly  different  though  mutually 
complementary.  The  surgical  classification  considers  the  part 
of  the  human  body  injured  and  the  nature  of  the  injury, 
while  the  economic  classification  considers  the  effect  of  the 
injury  upon  the  earning  capacity  of  the  worker.  Of  course, 
in  a  general  way,  the  severity  of  the  economic  loss  depends 
upon  the  surgical  nature  of  the  injury,  but  in  a  general  way 


INDUSTRIAL  ACCIDENTS  59 

only.  A  loss  of  an  index  finger  may  be  surgically  insignificant 
in  comparison  with  the  loss  of  a  leg,  but  to  an  engraver  it 
may  be  a  much  more  serious  matter  from  the  point  of  view  of 
earning  capacity.  On  the  other  hand,  one  can  hardly  imagine 
a  more  revolting  injury  than  the  entire  loss  of  a  scalp,  yet 
from  a  point  of  view  of  earning  power  the  effect  may  be 
negligible.  There  is  here  a  vast  field  for  practical  study  and 
investigation — a  field  which  is  entirely  virgin  to  the  American 
physicians — not  only  of  the  normal  earning  value  of  various 
injuries,  but  also  of  the  special  relations  between  injury  and 
occupation. 

As  the  main  causes  of  accidents  are  either  physical  violence 
(traumatism)  or  chemical  contact,  the  injuries  may  be  classi- 
fied roughly  into  two  groups,  namely: 

(1)  Wounds,  contusions,  fractures;  and, 

(2)  Burns,  scalds,  etc.,  the  latter  being  numerically  a  very 
much    less    important    factor.     A    further    classification    of 
wounds,  contusions,  and  fractures  proceeds  usually  on  the 
basis  of  the  part  of  the  body,  and  it  is  found  that  the  arms 
and  especially  the  hands  are  the  most  frequently  suffering 
parts,  injuries  to  these  constituting  from  one-third  to  two- 
fifths  of  all  accidents;  that  the  second  place  is  occupied  by 
injuries  to  lower  extremities,  being  about  25$,  the  other  parts 
of  the  body  claiming  the  other  25$,  as  may  be  seen  by  com- 
paring the  statistics  of  several  countries. 

PERCENTAGE  OP  ACCIDENTAL  INJURIES  ACCORDING  TO  SURGICAL 
NATURE  OF  INJURY 

Germany  Italy  Norway          Russia 

Burns  and  scalds   3.56  7.14  (a)            8.83 

Wounds,     etc.,     arms     and 

fingers    37.92  43.76  40.33        44.24 

Wounds,  etc.,  legs 25 . 21  25 . 39  26 . 6          14 . 01 

Wounds,  etc.,  neck 10 . 46  8.91  10 . 0          12 . 47 

Wounds,  etc.,  trunk 11 . 93  11 . 85  11 . 3            3.69 

All  other  injuries   10.92  4.75  11.8    (6)18.78 

(a)  Probably  included  with  "all  other  injuries." 

(6)  Includes  18.48  per  cent,  of  accident's  described  as  traumatism  without  laceration  with- 
out designation  of  part  of  body. 

Thus,  the  majority  of  accidents  are  such  as  to  interfere 
with  the  working  capacity  of  the  workman,  even  if  not  serious 
from  a  surgical  point  of  view.  The  classification  given  above 


60 


SOCIAL  INSURANCE 


is  rather  broad  and  diffuse,  and  does  not  convey  any  definite 
idea  as  to  the  nature  of  the  industrial  accidents.  For  this 
purpose  the  results  of  a  special  investigation  made  in  Austria 
and  covering  95,269  compensated  accidents  for  the  years  1897- 
1901  are  of  great  value. 


RESULTS  OF  INJURIES  FROM  ACCIDENTS  IN  AUSTRIA,  1897-1901 


Result  of  injury 
Loss  of  left  arm  .  .  . 
Loss  of  right  arm.  . 
Fracture  of  arm  .  .  . 
Fracture  of  forearm 
Other     injuries     to 
arm    

No. 
248 
360 
527 
2,214 

3,539 

6,888 

186 
231 

352 

5,286 

6,055 

675 
593 

947 
922 
899 

859 

742 

25,721 

Per  cent 
.26 
.38 
.55 
2.32 

3.72 

7.23 

.20 
.24 

.37 
5.55 

6.36 

.71 
.62 

.99 
.97 
.94 

.90 

.78 

27.00 

Result  of  injury 
Loss  of  one  leg.  .  . 
Loss  of  both  legs  .  . 
Fracture    of    upper 
leaf    . 

No.    Percent. 
537          .56 
24          .03 

857         .90 
3,772      3.96 
1,808      1.90 
15,170     15.92 

Fracture    of    lower 
leg    . 

All     injuries     to 
arm 

Injuries  of  arch  of 
foot 

Other     injuries     of 
leg  or  foot  

All     injuries     to 
leg  or  foot.  .  .  . 

Loss  of  toes  
Injuries  to  toes  .  .  . 

Total  injuries  to 
toes    

Loss  of  left  hand.  . 
Loss  of  right  hand. 
Fractures    of    bone 
of  hand  
Other     injuries     of 
hand    

22,168 

210 
3,054 

23.27 

.22 
3.20 

All     injuries     to 
hand    

Loss  of  one   finger, 
right  hand    
Loss  of  one  finger, 
left  hand    .        .  . 

3,264 
25,432 
580 

70,313 
1,718 
228 

3.42 
26.69 
.61 

73.80 
1.80 
.24 

Total  injuries  to 
lower  extremity 
Loss    or    injury    to 
arm  and  leg  .... 

Total   injuries   to 
upper  or  lower 
extremity    .... 

Loss  of  one  eye  .  .  . 
Loss     of     one     eye 
and  injury  to  the 

Loss      of      two      or 
more  fingers,  right 
hand    
Loss  of  two  or  more 
fingers,  left  hand 
Loss  of  part  of  one 
finger,  right  hand 
Loss  of  part  of  one 
finger,  left  hand. 
Stiffness  of  fingers. 
Other     injuries     to 
fingers   

Total   injuries  to 
fingers   31,358     32.91 


Loss  of  both  eyes. .          51 

Injury  to  eye 3,191       3.35 

Injury  to  both  eyes        224         .24 


Total  injuries  to 
upper  extrem- 
ity    44,301 


46.50 


Total   injuries   to 

eyes    5,412       5 . 68 


INDUSTRIAL  ACCIDENTS 


61 


Result  of  injury 
Injury  to  head.  .  .  . 
Injury   to    shoulder 
Fracture    of    collar 
bone       

No.    Per  cent. 
3,365       3.53 
1,514       1.59 

742         .78 
1,415       1.49 
4,355      4.57 
860         .90 

4,537      4.76 
1,155       1.21 
502         .53 
510         .55 
204         .21 
219         .23 
166         .17 

Fracture  of  ribs  .  .  . 
Injuries  to  trunk  .  . 
Ruptured    

Injuries    to    several 
parts  of  body  .  .  . 
Internal  injuries  .  . 
Concussion  of  brain 
Miscellaneous     .... 
Traumatic   neurosis 
Suffocation   
Drowning    . 

Injuries     to     head 

and  trunk 19,544     20.52 


SUMMARY  OP  SERIOUS  ACCIDENTS 

Loss  of  No.  Per  cent. 

Arm 608  .64 

Hand   417  .44 

Fingers   4,895  5 . 14 

Leg    561  .59 

Toes     210  .22 

Eyes     1,997  2.10 

Total  loss  of  parts  8,688  9.13 

Fractures : 

Arm  and  forearm  2,741  2.87 

Hand   352  .37 

Leg    4,629  4.86 

Collar  bone    ....  742  .78 

Ribs     1,415  1.49 


95,269100.00          Total  fractures ..     9,879     10.37 

Bather  a  gruesome  picture.  8,688  arms,  hands,  fingers, 
legs,  toes,  and  eyes — what  an  army  of  human  cripples  does 
our  industry  produce!  True,  it  is  the  result  of  five  years' 
work  of  the  Juggernaut  in  Austria,  but  then  Austria  is  but 
a  small  country  industrially  considered.  Even  though  109 
of  these  cripples  died  as  a  result  of  their  injuries,  8,579  re- 
mained to  live,  and  over  1,700  a  year  are  added  to  this  army. 

How  big  is  this  army  in  the  United  States  ?  No  one  knows, 
but  perhaps  some  estimate  may  be  ventured.  During  the  same 
five  years  there  were  in  Austria  3,871  fatal  accidents.  There 
are,  therefore,  over  two  cripples  produced  for  each  and  every 
fatal  injury.  If  there  are  30,000  fatal  industrial  accidents  in 
the  United  States,  there  must  be  some  60,000  crippling  injuries 
each  year.  There  is  a  problem  of  preservation  of  human  re- 
sources in  comparison  with  which  even  the  coal  fields  of 
Alaska  shrink  into  insignificance.  Sixty  thousand  cripples 
added  annually  to  our  army  of  18,000,000  wage-earners !  As- 
suming only  thirty  active  years,  it  would  mean  that  about 
10$  of  our  productive  population  must  sooner  or  later  suffer 
not  only  bodily  injury  but  even  mutilation. 

From  the  point  of  view  of  economic  results,  the  injuries 
and  their  results  may  be  classified  in  two  different  ways,  accord- 
ing to  the  duration  of  the  disability  induced  by  the  accident 
and  according  to  the  degree  of  disability  thus  induced.  Simple 
as  this  division  is,  it  is  remarkable  that  in  the  early  period 
of  the  compensation  movement  in  the  United  States,  many  of 


62  SOCIAL  INSUKANCE 

the  concepts,  especially  as  to  the  degree  of  disability,  were 
absolutely  unknown  to  the  American  writers  and  legislators 
on  the  subject;  and  many  of  the  grossest  mistakes  in  early 
acts,  and  even  in  the  more  recent  enactments,  were  due  to  the 
lack  of  understanding  of  the  difference  between  a  slight  but 
permanent  injury  and  a  temporary  one.  It  is  quite  evident 
that  the  economic  results  of  the  loss  of  one  finger  which  the 
workman,  not  being  a  crustacean,  can  never  regain,  are  en- 
tirely different  from  those  of  a  fracture  of  a  leg,  which  may 
lead  to  complete  recovery  after  three  months'  confinement  to 
bed.  In  popular  opinion,  as  evidenced  by  jury  verdicts,  often 
the  picturesque  but  surgically  and  economically  unimportant 
fracture  looms  forth  much  more  gravely  than  a  contraction 
of  one  finger-joint,  which  may  absolutely  disqualify  a  work- 
man from  his  profession.  It  is  quite  important,  therefore,  to 
define  very  clearly  these  new  concepts  upon  which  much  of 
compensation  legislation  is  based. 

First,  duration : — The  results  of  an  injury,  as  far  as  work- 
ing ability  is  concerned,  may  last  a  very  short  time  or  they 
may  last  forever.  As  an  example  of  the  latter,  are  the  losses 
of  limbs  or  any  part  of  the  limb.  But  outside  of  such  loss  of 
living  substance,  there  are  many  other  permanent  injuries, 
such  as  absolute  loss  of  function.  In  other  cases,  however,  it 
may  be  impossible  to  be  absolutely  certain  that  recovery  can- 
not take  place,  but  the  prospective  duration  appears  so  long 
as  to  be  classified  among  the  permanent  injuries.  Such  are 
partial  paralyses,  showing  a  very  slight  tendency  to  recovery, 
weak  joints,  neurotic  symptoms,  etc.  In  each  individual  case 
the  determination  may  not  be  at  all  a  simple  matter,  and  it  is 
the  practice  to  classify  as  permanent  injuries  those  that  are 
likely  to  remain  so.  Thus  the  temporary  injuries  shade  gradu- 
ally into  permanent  ones.  In  a  good  many  cases  of  minor 
injuries,  the  period  of  disability  coincides  with  the  period  of 
medical  treatment,  but  in  the  graver  cases,  after-effects  of 
injuries  extending  a  long  time  beyond  the  period  of  treatment 
are  not  uncommon,  especially  where  bones  and  joints  have 
been  affected. 

Eloquent  illustrations  of  this  may  be  drawn  from  the  same 
Austrian  statistics,  which  were  so  profusely  quoted  above. 
Thus,  of  the  95,269  accidents  analyzed  there  were  3,871 
fatal  ones  and  91,398  non-fatal  ones.  Of  these  36,911  resulted 


INDUSTRIAL  ACCIDENTS 


63 


in  permanent  disability,  and  yet  we  found  only  8,579  cases 
of  actual  loss  of  substance. 

It  may  be  worth  while  to  present  a  few  figures  which  will 
indicate  what  kind  of  injuries  other  than  loss  of  some  part 
of  the  body  may  lead  to  permanent  injury. 


INJURIES  OTHER  THAN  Loss  OF  PART  OF 
PERMANENT  DISABILITY  IN  AUSTRIA 

Total  number 
of  cases 

Fracture  of  arm 527 

Fracture  of  forearm 2,114 

Other  injuries  of  arm 3,539 

Fracture  of  bones  of  hand 352 

Other  injuries  of  hands 5,286 

Stiffness  of  fingers   742 

Other  injuries  of  fingers 25,721 

Fracture  of  leg  4,629 

Injury  of  arch  of  foot 1,808 

Other  injuries  of  leg  or  foot ....  15,170 

Injury  to  eyes 3,415 

Injuries  to  head    3,365 

Injuries  to  shoulder   1,514 

Fracture  of  collar  bone 742 

Fracture  of  ribs 1,415 

Injuries  to  trunk   4,355 

Ruptures,  etc 860 

Injuries  to  several  parts 4,537 

Internal  injuries   1,155 

Concussion  of  brain 502 

Miscellaneous   527 

Traumatic  neurosis  .  204 


BODY  LEADING 
(1897-1901) 

Cases  resulting 
in  permanent 
disabilty 

290 
1,094 
1,189 

152 
1,306 

709 
7,143 
2,910 

792 
3,384 
2,174 
1,183 

819 

372 

460 
1,502 

599 
1,507 

232 

186 

184 

173 


TO 


Per 
cent. 

55 
51 
34 
43 
24 
96 
28 
63 
44 
22 
64 
35 
54 
50 
33 
34 
70 
33 
20 
37 
35 
85 


82,479  28,360  34 

Thirty-four  per  cent,  of  all  injuries  without  loss  of  parts 
are  permanent. 

That  is  the  result  not  of  surgical,  but  of  economic  judgment, 
or  rather  of  both  judgments  combined.  The  ten  fingers  are 
the  "  capital  "  which  the  workman  possesses,  and  they  are 
worth  something — worth  a  living — only  when  they  are  in  per- 
fect condition.  This  explains  why  a  stiff  finger, — surgically 
a  comparatively  small  matter, — is  economically  more  serious 
in  its  results  than  a  fracture  of  a  leg  or  a  concussion  of  a 
brain.  On  the  other  hand,  there  were  at  least  72  cases  of 
complete  loss  of  finger,  and  620  cases  of  loss  of  phalanx,  which 
were  declared  temporary  injuries  only.  Here  is  evidence  that 


64  SOCIAL  INSURANCE 

the  decision  as  to  the  permanency  of  the  injury  is  much  more 
than  a  surgical  question,  that  it  cannot  well  be  presented  in 
ironclad  rules,  that  it  must  be  made  in  each  individual  case 
and  with  due  regard  to  the  occupation  of  the  injured  person. 

An  entirely  different  line  of  division  is  that  between  total 
and  partial  disability  and  between  various  degrees  of  the  lat- 
ter. The  terms  are  really  self-explanatory.  A  victim  of  an 
accident  who  is  absolutely  disabled  from  obtaining  any  re- 
munerative employment  is  evidently  suffering  from  total  dis- 
ability. Those  whose  earning  capacity  is  not  altogether 
destroyed  but  materially  reduced,  are  suffering  from  partial 
disability,  and  the  question  of  the  degree  of  such  disability 
becomes  important. 

One  must  not  confuse  total  disability  with  total  helpless- 
ness. A  man  may  suffer  from  both,  as  for  instance,  in  case  of 
loss  of  both  arms,  or  when  his  spine  is  broken.  But  the  injury 
need  not  be  so  severe  in  order  to  make  his  case  one  of  total 
disability.  Total  loss  of  sight  may  not  lead  to  total  helpless- 
ness, but  for  an  adult  it  means  absolute  inability  to  obtain 
remunerative  employment,  at  least  in  the  open  market,  though 
an  opportunity  may  be  offered  in  special  institutions  of  a 
philanthropic  character.  In  fact,  there  are  many  injuries  less 
severe,  which  do  not  altogether  destroy  the  working  capacity 
of  the  man,  but  yet  may  for  all  practical  purposes  close  all 
doors  for  remunerative  employment,  for  the  principles  of 
scientific  management  hardly  encourage  the  employment  of 
cripples. 

The  range  of  injuries  leading  to  partial  disability  is  ex- 
tremely wide.  Any  loss  of  a  member  reduces  the  earning 
capacity  either  immediately  or  potentially  by  forcing  a  change 
of  occupation  or  making  the  matter  of  finding  a  new  position 
more  difficult.  When  mechanical  dexterity  is  essential,  a 
loss  of  any  finger  (or  loss  of  function)  may  be  a  very  essential 
matter.  An  injury  of  the  lower  limbs  may  force  a  change  from 
an  outdoor  to  a  sedentary  occupation.  For  carrying  heavy 
weights  any  weakness  of  the  body  muscles  or  a  hernia  is  a  very 
serious  disqualification. 

The  preceding  discussion  was  necessary  for  an  intelligent 
consideration  of  the  statistical  data  which  follow.  For  a  num- 
ber of  countries  information  is  available  concerning  the  dis- 
tribution of  accidents  among  these  four  classes:  fatalities, 


INDUSTRIAL  ACCIDENTS 


65 


total  and  permanent  disability,  partial  permanent  disability, 
and  temporary  disability. 

DISTRIBUTION  OF  ACCIDENTS  ACCORDING  TO  THE  KIND  AND  DEGREE 

OF  DISABILITY 


Permanent  disability 

Temporary 
disability 

2 

it 

a 

« 

Country  and  year 

gg 

'5 

i 

o 

*t 

«i 

"oS  ^ 

S 

'oS 

• 

5 

O 

"*^  cj 

3 

^ 

•£? 

^ 

o 

W 

* 

i 

^ 

1 

£ 

1 

£ 

1 

Austria,  '06  («). 

26,639 

885 

3.32 

403 

1.51 

9,793 

36.76 

15,558 

58.41 

Belgium,  '08... 

156,499 

510 

.33 

(*) 

(*) 

2,523 

1.61 

153,466 

98.06 

France,  '08  

404,318 

1,997 

.49 

(6) 

(6) 

5,619 

139 

391,319 

98.12 

Germany,  '08  (a) 

142,965 

9,856 

6.26 

1,160 

.81 

57,410 

40.11 

74,539 

52.77 

Italy  '02   

57,617 

430 

.70 

32 

.06 

2,716 

4.71 

54,439 

94.53 

Russia,  '06  

136,049 

995 

.73 

114 

.08 

16,525 

12.14 

115,403 

87.05 

Spain,  '07  

30,472 

207 

.68 

19 

.06 

80 

.27 

30,164 

98.25 

Sweden,  '06  

15,041 

249 

1.66 

(b) 

1,228 

8.16 

13,444 

89.38 

(a)  Accidents  compensated  only. 

(b)  Not  separately  stated  :  included  with  partial  disability. 


The  warning  cannot  be  made  too  emphatic,  that  no  com- 
parative statements  between  countries  should  be  made  on  the 
basis  of  this  table.  Rather  may  it  be  used  as  an  excellent 
illustration  of  the  difficulty  of  making  such  comparisons  unless 
one  is  thoroughly  familiar  with  the  nature  of  the  statistical 
material.  It  is  for  this  reason  partly,  that  so  much  comparative 
statistical  material  is  given  here,  because  the  point  cannot  be 
emphasized  too  strongly,  that  without  some  familiarity  with 
the  methods  of  accident  statistics,  the  problem  will  never  be 
satisfactorily  solved  in  the  United  States. 

The  vastly  greater  proportion  of  permanent  injuries  in  Ger- 
many and  in  Austria  than  in  France  and  Russia  immediately 
forces  itself  upon  our  notice.  Can  it  be  that  accidents  in  Ger- 
many are  so  very  much  more  destructive  ?  But  it  also  appears 
that  these  countries  show  a  very  much  smaller  number  of  ac- 
cidents. The  truth  is  that  the  data  for  Germany  and  France 
are  altogether  incomparable,  for  German  statistics  include  only 


66  SOCIAL  INSURANCE 

accidents  which  throw  the  victims  out  of  work  for  over  thirteen 
weeks,  i.e.,  practically  all  serious  accidents,  while  French 
statistics  include  all  injuries  of  over  three  days'  duration. 
Austria  occupies  a  middle  ground,  as  there  all  accidents  of  over 
four  weeks'  duration  are  included.  Another  difference  is  that 
Austrian  and  German  statistics  are  based  upon  a  careful  study 
of  accidents  compensated,  while  the  statistics  of  France  are 
based  upon  reports  sent  in  a  few  days  after  the  occurrence  of 
the  accident,  when  the  final  result  is  in  many  cases  uncertain. 
For  the  present  purpose  perhaps  the  Russian  figures  are  best, 
because  they  are  fairly  reliable  and  cover  all  accidents  of  over 
three  days'  duration.  They  show  that  about  12$  of  all  acci- 
dents lead  to  permanent  results.  However,  the  statistics  show 
that  in  an  industrially  important  country  their  number  is  not 
so  small.  If  Germany  shows  nearly  60,000  maimed  and  10,000 
fatally  injured,  the  number  in  the  United  States  must  be  vastly 
greater,  perhaps  several  times  as  great. 

Cases  of  total  permanent  disability  are  few — that  the 
statistics  of  all  countries  conclusively  show.  The  experience 
of  1897-1901  in  Austria  showed  that  of  33,568  accidents  lead- 
ing to  permanent  disability,  in  9.8$  of  the  cases  the  degree  of 
disability  was  less  than  10$;  in  31.7$,  from  10$  to  19$;  in 
19.3$,  from  20$  to  less  than  33  1-3$,  or  one-third;  in  15.6$, 
one-third  or  over,  but  less  than  one-half;  in  9.5$,  one-half 
and  over,  but  less  than  two-thirds;  in  11.10$,  two-thirds  or 
over,  but  less  than  five-sixths,  and  in  3$  it  was  total.  Present- 
ing the  same  data  in  a  slightly  different  way,  in  85.9$,  the 
degree  of  disability  was  less  than  two-thirds;  in  76.4$,  less 
than  one-half;  in  60$,  less  than  one-third;  in  41.7$,  less 
than  20$. 

Recently  Germany  investigated  the  results  of  65,205  cases 
occurring  in  1904  and  their  results  by  the  end  of  1908.  It 
was  found  that  by  the  end  of  that  period  about  one-fourth  of 
all  cases  (24.17$)  showed  a  permanent  disability  of  under 
25$,  about  10$  (9.27)  from  25$  to  50$  and  only  5$  (4.77) 
over  50$,  and  that  53.73$  were  temporary  cases,  though  about 
10$  were  still  somewhat  disabled  at  the  end  of  five  years.  In 
Italy  a  special  investigation  has  shown  that  of  all  cases  of 
permanent  disability,  in  94$  the  disability  was  not  over  60$; 
in  80$,  not  over  one-half;  in  65$,  not  over  20$. 

On  the  other  hand,  of  the  cases  of  temporary  disability  the 


INDUSTRIAL  ACCIDENTS  67 

vast  majority  represents  very  small  injuries  indeed.  Oddly 
enough,  the  best  statistics  on  the  subject  are  found  in  Italy 
and  Russia. 


DURATION  OF  INJURIES  RESULTING  IN  TEMPORARY  DISABILITY  IN 
ITALY  (1902).  (ONLY  INJURIES  OF  OVER  FIVE  DAYS'  DURATION 

INCLUDED) 

Total  number  of  accidents  .  57,617  100.00 

Accidents  resulting  in  death  430  .75 

Permanent  disability 2,748  4.78 

Temporary  disability 54,439  94.43 

Lasting  6-10  days    14,588  25.32 

11-15      "       13,078  22.70 

16-20     "       8,442  14.65 

21-30      "       8,707  15.11 

31-60      "       7,356  12.77 

over  60     "      2,268  3.93 

Nearly  one-half  of  all  the  accidents  are  evidently  either  alto- 
gether trivial  or  comparatively  slight,  as  48$  of  injuries  do 
not  last  over  15  days,  even  after  all  injuries  of  less  than  five 
days  have  been  omitted  from  consideration.  Another  30$  do 
not  extend  beyond  the  30th  day,  and  it  is  only  the  remaining 
20$  that  present  serious  economic  problems. 

If  from  sunny  Italy  we  go  to  frozen  Russia,  we  find  very 
much  the  same  condition  of  affairs,  showing  a  remarkable 
regularity  in  the  phenomena  which  accident  statistics  is  deal- 
ing with. 

DURATION  OF  ACCIDENTAL  INJURIES  IN  RUSSIA  (1906).  (MANUFAC- 
TURES ONLY.  ACCIDENTS  OF  LESS  THAN  THREE  DAYS'  DURATION 
OMITTED) 

Number  Per  cent. 

Total  number  of  accidents  in  industry 57,196  100.00 

Accidents  resulting  in: 

Death    367  .64 

Permanent  disability 10,098.  17.66 

Temporary  disability 46,731  82.70 

Lasting  7  days  and  under 13,481  23.57 

8-14  days 14,127  24.70 

15-21     "      6,922  12.10 

21-28    "      3,919  6.85 

29-63     "      6,492  11.35 

64-91     "      1,060  1.85 

over  91    "  730  1.28 


68  SOCIAL  INSURANCE 

There  again  a  greater  proportion  falls  in  the  class  of  in- 
juries under  28  days — namely,  67$,  and  the  total  number  of 
accidents  over  13  weeks  (91  days),  permanent  disabilities  and 
fatalities  does  not  exceed  one-fifth  (19.58$)  of  all  accidents. 

It  was  necessary  to  make  this  tedious  journey  into  the  land 
of  accident  statistics  so  as  to  get  the  proper  perspective. 
The  problem  is  so  important  and  the  situation  so  serious 
that  its  dimensions  could  not  be  neglected.  An  estimate  of 
2,000,000  cases  of  accidental  injuries  in  one  year  in  this  coun- 
try would  appear  utterly  preposterous  and  impossible  if  it 
were  read  to  mean  2,000,000  workingmen  maimed  each  year, 
and  would  be  discarded  because  of  this  lack  of  verisimilitude. 
When  properly  explained,  the  statement  appears  quite  likely 
to  be  true.  Surely  no  desire  has  here  been  shown  to  minimize 
the  problem.  Even  if  only  20$  of  the  accidents  are  more  or 
less  serious,  that  on  an  estimate  of  2,000,000  accidents  would 
mean  400,000  serious  cases.  On  the  basis  of  that  estimate,  we 
may  assume — until  proper  accident  statistics  make  all  such 
assumptions  unnecessary — that  there  occur  in  the  United 
States  annually  some  30,000  fatal  industrial  accidents,  about 
200,000  accidents  leading  to  permanent  disability,  of  which 
nearly  60,000  are  cases  of  actual  loss  of  part  of  body,  and 
about  100,000  resulting  in  disability  of  under  25$  and  another 
50,000  in  disability  of  25  to  50$,  and  the  remainder  cause 
disability  of  over  50$.  In  addition,  some  170,000  accidents  are 
serious  in  that  the  disability  lasts  over  three  months,  but 
eventually  they  result  in  complete  recovery,  especially  if 
economic  conditions  favor  it. 

What  amount  of  distress  and  mental  anguish  for  the  vic- 
tims and  their  dependents,  what  amount  of  economic  waste 
these  gruesome  figures  represent,  the  reader  need  not  be  told. 
Here  surely  is  a  case  where  "  no  further  comment  is  neces- 
sary. " 


CHAPTER  V 
THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS 

WHAT  is  the  cause  of  this  awful  slaughter?  What  factors 
in  our  present  organization  of  industrial  activity  are  respon- 
sible for  it? 

There  is  no  dearth  of  positive  and  sweeping  replies  to  this 
query.  "  Modern  industry,"  says  one;  "  this  thing  is  sad, 
but  inevitable."  "  Carelessness  and  ignorance  of  the  wage- 
worker,"  insists  the  other.  When  this  question  was  placed 
upon  the  examination  papers  of  a  post-graduate  class,  an 
enthusiastic  student  who  had  imbibed  freely  of  the  Marxian 
philosophy,  was  quite  sure  of  the  proper  answer:  "  Private 
ownership  of  the  means  of  production  and  greed  of  the  capi- 
talists is  the  only  cause. ' '  A  large  element  of  truth  may  freely 
be  admitted  in  each  and  every  one  of  these  explanations. 
Nevertheless,  it  is  not  a  problem  which  can  be  satisfactorily 
solved  by  broad  and  bold  generalities  only. 

Moreover,  there  is  absolutely  no  need  to  indulge  in  specu- 
lation and  vain  theorizing,  for  a  vast  amount  of  material  on 
this  subject  has  been  accumulated.  In  each  accident  after  it 
has  occurred,  the  specific^cause  is  usually  discernible,  meaning 
by  the  cause  the  definite  condition  without  which  the  accident 
would  not  have  occurred,  the  condition  which  (perhaps)might 
have  been  eliminated  in  advance,  or  provided  for,  and  thus  the 
accident  prevented.  One  can  readily  see  what  a  vast  amount  of 
information  may  be  obtained  after  millions  of  accidents  have 
been  analyzed  in  this  way.  As  a  matter  of  fact,  when  all 
statistics  available  on  this  subject  have  been  taken  into  con- 
sideration, literally  millions  of  accidents  have  been  classified 
as  to  their  causation.  Surely  the  results  of  this  study  are 
worth  considering  before  a  proper  answer  to  our  question  can 
be  formulated.  Fortunately  almost  all  statisticians  in  Euro- 
pean countries  have  adopted  nearly  the  same  classification  of 

69 


70  SOCIAL  INSURANCE 

causes,  so  that  in  this  respect  at  least  some  interesting  com- 
parisons between  different  countries  can  be  made. 

PERCENTAGE  DISTRIBUTION  OF  INDUSTRIAL  ACCIDENTS  ACCORDING  TO 
CAUSES.    FRANCE,  GERMANY,  ITALY,  RUSSIA 


France  Germany  Italy  Russia 

Per  cent.  Per  cent.  Per  cent.  Per  cent. 

Motors    .................  24  .64  .42  .39 

Transmission  of  power  ..         .74  1.20  .68  1.90 

Machinery  and  implements       8.07  17.50  9.35  27.78 

Elevators,  cranes,  etc  ......  88  5.03  .38  2.03 

Steam  boilers,  etc  ........  12  .18  .11  .62 

Explosives  ...............  16  .64  .14  .04 

Burning  material,  etc  .....       5.76  3.53  6.09  5.04 

Falling  objects  ..........     16.76  15.08  17.95  7.70 

Falls  from  ladders,  etc.   ..     17.64  11.30  14.64  3.38 

Handling  heavy  objects  ..     19.08  14.02  17.11 

Driving  animals,  etc  .....       7.42  8.27  1.55 

Hand  tools   .............       7.80  4.10  7.52  15.07 

Miscellaneous    .                      15.33  --18.51  42.72  17.39 


Total....  100.00      ,100.00        100.00        100.00 

Many  variations  are  observed  between  one  country  and  an- 
other, due  partly  to  difference  in  statistical  methods,  partly 
to  real  existing  differences.  Certain  causes  produce  very  light 
injuries  and  others  mainly  serious  ones.  When  we  take  only 
accidents  which  lasted  over  thirteen  weeks  in  Germany,  we 
find  a  much  smaller  proportion  of  accidents  due  to  hand  tools 
than  in  Russia,  where  all  accidents  of  over  three  days'  dura- 
tion are  accounted.  Other  differences  indicate  existing  con- 
ditions of  industry.  In  Germany,  where  industry  is  more 
highly  developed,  a  larger  proportion  of  accidents  is  natu- 
rally due  to  machinery.  But  notwithstanding  all  these  minor 
variations,  a  certain  unity  may  be  observed. 
.  The  following  inferences  may  safely  be  ventured:  A  cer-/ 
'  tain  proportion  of  these  accidents  (from  one-fourth  to  one- 
third)  is  palpably  due  to  modern  instruments  of  production: 
machinery,  engines,  hoists,  cranes,  etc.  Tools  there  always 
were,  for  man  is  a  tool-making  animal.  But  only  few  accidents 
are  due  to  hand  tools,  and  only  the  less  serious  accidents  are  ^ 
caused  in  this  way,  while  the  serious  life-  or  limb-destroying 
injuries  are  produced  by  the  powerful  and  ingenious  instru- 
ments of  production  which  were  entirely  unknown  one  hundred 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS      71 

years  ago.  In  regard  to  the  first  five  or  six  groups  in  this 
classification  there  can  be  no  dispute.  But  at  a  superficial 
glance,  it  may  appear  that  only  a  minority  of  the  accidents 
may  thus  be  explained — and  that  the  majority  are  due  to  such  „ 
fortuitous  circumstances  as  falling  objects  or  falls  of  work- 
men, or  the  handling  of  heavy  objects,  etc. 

But  a  close  acquaintance  with  the  actual  conditions  of 
modern  production  will  throw  much  light  even  upon  these 
accidents.  Falls  have  become  a  very  serious  and  frequent 
cause  of  grave  accidents  because  work  is  often  done  at  dizzy 
heights.  One  has  only  to  think  of  the  peculiar  dangers  which 
a  structural  iron-worker  must  face  daily  in  the  construction 
of  modern  skyscrapers.  Falling  objects  may  always  be  dan- 
gerous, but  become  especially  so  in  mining,  when  walls  of 
excavations  collapse.  Handling  heavy  objects  is  a  cause  that 
stands  in  direct  connection  with  the  objects  of  great  weight 
that  are  used  in  modern  construction,  in  the  metal-  and  stone- 
working  industry.  And  so  it  is  all  along  the  line.  Modern 
industry  has  either  created  new  dangers  or  aggravated  old 
ones,  so  that  the  rare  accidents  of  older  centuries  have  become 
every-day  occurrences  of  the  present  time. 

Perhaps  the  best  illustration  of  this  can  be  gleaned  from 
an  Italian  statistical  study  which  (with  the  ingeniousness 
characterizing  most  of  Italian  statistical  work)  has  separated 
two  special  causes  of  accidents  not  found  in  other  statistical 
reports :  ' '  Striking  against  fixed  or  immovable  objects  ' '  and 
"  sudden  movements  of  the  body."  Nothing  is  more  natural 
for  any  human  being  than  a  sudden  movement  of  the  body  or 
striking  against  a  fixed  object.  But  it  is  only  when  it  occurs 
in  a  modern  industrial  establishment  that  it  becomes  a  source 
of  serious  bodily  injury.  Out  of  124,543  accidents  studied  in 
one  year,  35,652,  or  28.63$,  were  due  to  the  first  of  these  two 
causes  and  12,525,  or  10.06$  to  the  second,  altogether  38.69$, 
or  nearly  two-fifths  to  these  two  causes  alone.  The  explana- 
tion must  necessarily  be  looked  for  in  the  economy  of  space 
which,  because  of  the  high  land  values,  is  observed  in  all  in- 
dustrial establishments. 

This  analysis  could  be  continued  ad  infinitum.  But  enough 
has  been  said  to  substantiate  the  conclusion  that  the  explana- 
tion of  the  hundreds  of  thousands  of  industrial  accidents  must 
be  looked  for  not  so  much  in  the  failings  of  human  nature  as 


\ 


72  SOCIAL  INSURANCE 

x 

in  the  material  conditions  ofJndustrial  activity  as  conducted 
to-day. 

This  conclusion  is  especially  true  when  the  graver  injuries 
are  studied.  Thus,  according  to  German  statistics,  railroads 
operations  are  responsible  for  9.71$  of  all  accidents,  but  this 
proportion  rises  to  16.59$  when  fatal  accidents  are  studied. 
In  the  case  of  explosives,  the  proportion  of  all  accidents  is 
only  0.64$;  of  fatal  accidents,  2.20$.  Inflammable  substances, 
of  all  accidents,  3.53$;  of  fatal  accidents,  9.04$.  On  the  other 
hand,  tools  cause  4.10$  of  all  accidents,  and  only  1.52$  of  the 
fatal  ones. 
,  The  problem  of  responsibility  for  industrial  accidents  is 

uch  more  complicated  than  the  problem  of  definite  causa- 
tion. Even  after  the  definite  mechanical  cause  of  each  accident 
has  been  established,  the  problem  of  responsibility  may  still 
remain  a  subject  open  to  difference  of  opinion,  and  often  de- 
pendent upon  our  views  of  economic  life  and  even  our  social 
sympathies  and  antipathies.  A  request  for  an  explanation 
as  to  the  responsibility  from  the  employer  and  the  injured 
employee  is  very  likely  or  rather  certain  to  bring  forth 
directly  contradictory  replies,  as  may  well  be  illustrated  by 
any  of  the  thousands  of  liability  suits  which  are  tried  each 
year  in  American  courts.  Naturally,  when  a  statistical  inves- 
tigation of  this  point  is  made,  the  results  will  depend  greatly 
upon  whoever  is  asked  to  give  the  information.  For  this  rea- 
son, most  statistical  reports  avoid  this  problem  of  responsibility 
because  of  the  very  great  difficulty  of  obtaining  trustworthy 
and  reliable  information. 

A  few  special  investigations  of  this  important  problem  have 
been  made,  and  their  results  are  very  instructive.  The  most 
important  investigations  are  those  which  were  made  in 
Germany  in  1887,  1897,  and  in  1907,  thus  giving  in  addi- 
tion the  valuable  opportunity  of  drawing  conclusions  as  to 
the  effect  of  industrial  development  upon  causation  of  in- 
dustrial accidents. 

The  following  are  the  thi^^ajn^factQis  upon  which  the 
responsibility  is  usually  shifte^TFirstTThe  wpj^kmajLJiiniself 
who,  by  his  carelessness  (or  negligence,  to  use  the  legal 
terminology),  may  evidently  cause  an  injury  to  himself.  This 
is  a  conception  which  is  familiar  to  every  one  in  every-day 
life,  and  in  reality  has  been  bodily  carried  over  from  every- 


THE  CAUSES  OP  INDUSTRIAL  ACCIDENTS      73 

day  life  into  industrial  activity.  It  is  usually  the  careless 
man  who  is  run  over  by  an  automobile  or  rocks  the  boat,  or 
is  caught  by  an  undercurrent  or  takes  the  wrong  medicine,  or 
cuts  his  finger  in  sharpening  his  pencil,  and  so  forth. 

Secondly,  it  is  the_employer  who  is  responsible  for  a  rotten 
board  used  for  scaffolding,  or  a  machine  which  is  out  of  order, 
for  a  boiler  which  explodes,  or  a  steam-pipe  which  bursts  be- 
cause not  properly  inspected.  In  modern  industry,  the  actual 
employer,  often  a  corporation,  may  not  have  any  actual 
knowledge  of  the  conditions  of  the  place  and  machinery  of 
production,  but  the  conception  of  "  employer  "  naturally  in- 
cludes his  responsible  agents. 

And  then,  there  is  a  large  class  of  accidents  which  are 
described  as  due  to  the  ' '  general  hazard^of_the,ipdiistry.7>  To 
be  sure,  this  is  but  a  negative  expIanationTor  rather  no  ex- 
planation at  all.  It  simply  means  either  our  ignorance  as  to 
the  real  final  cause  of  the  accident,  or  our  admission  that  we 
do  not  know  how  to  prevent  it.  Thus  the  entire  number  of 
industrial  accidents  may  be  divided  into  two  large  classes,  the 
preventable  and  unpreventable  accidents/  At  any  particular 
moment  our  classification  of  an  accident  as  due  to  the  general 
hazard  of  the  industry  may  be  a  correct  one,  being  an  indica- 
tion of  the  existing  state  of  knowledge  as  to  accident  preven- 
tion, compared  with  the  general  development  of  the  productive 
arts.  And  it  is  characteristic  of  our  age,  which  has  put  a 
greater  value  upon  the  production  of  wealth  than  the  con- 
servation of  human  resources,  that  the  science  and  art  of  ac- 
cident prevention  is  still  in  its  infancy  and  the  hazard  of 
industry  is  still  a  very  vicious  factor  in  the  killing  and  maim- 
ing of  human  machines. 

In  addition  to  these  three  main  factors  there  are  a  few 
minor  ones,  or  rather  there  is  a  certain  number  of  accidents 
which  cannot  be  classified  under  any  of  these  heads;  such 
as  accidents  to  the  causation  of  which  the  faults  of  both 
employer  and  employee  have  contributed  much,  as  when  a 
flagrantly  deficient  machine  is  provided  and  the  workman, 
though  conscious  of  the  danger,  out  of  sheer  foolhardiness 
fails  to  call  attention  to  the  fact.  Or  again,  one  workman 
may  be  injured  because  of  the  carelessness  of  another  work- 
man. With  the  aid  of  these  explanations  the  following  figures 
will  become  intelligent. 


74  SOCIAL  INSURANCE 

RESPONSIBILITY  FOR  INDUSTRIAL  ACCIDENTS  IN  GERMANY 

Percentage  of  all  accidents  due  to  cause 

specified  in  :— 

Cause                                                       1887                  1897  1907 

Fault  of  employer   20.47          17.30  12.06 

Fault  of  injured  employee 26 . 56          29 . 74  41 . 26 

Fault  of  both  employer  and  employee    |4.61            4.83  0.91 

Fault  of  fellow-employee   I  3 . 40            5 . 31  5 . 94 

General  hazard  of  industry ^44.96          41.55  37.65 

Other  causes  (chance,  etc.)   1.27  2.18 

Thus  German  data  seem  to  indicate  that:  (1)  the  most  fre- 
quent cause  of  accidents  is  at  present  the  fault  of  the  em- 
ployee, over  two-fifths  of  the  accidents  being  due  to  that  cause ; 
(2)  nearly  as  many  are  still  due  to  the  general  hazard  of  the 
industry;  (3)  about  one-eighth  are  due  to  the  fault  of  the 
employer;  and  (4)  only  6$  are  due  to  the  acts  of  a  fellow- 
worker.  A  comparison  of  the  data  for  the  three  consecutive 
investigations  seems  to  indicate  that  an  increasing  proportion 
of  accidents  is  due  to  the  injured  employee's  own  fault,  that 
the  proportionate  number  of  accidents  due  to  general  hazard 
of  industry,  which  we  have  interpreted  to  mean  unpreventable 
accidents,  is  declining,  as  also  is  the  proportion  of  accidents 
due  to  the  employer's  carelessness,  or,  in  other  words,  that  the 
employer  is  gradually  learning  to  provide  a  safe  place  and 
instruments  and  appliances  of  production. 

Of  course,  such  figures  must  not  be  taken  as  possessing 
absolute  accuracy  or  universal  application. 

Thus,  in  some  American  investigations  vastly  different  re- 
sults were  obtained.  In  Minnesota,  for  instance,  when  the 
opinion  of  the  employer  was  asked  as  to  the  cause  of  the 
accidents,  out  of  4,084  accidents  only  four,  i.e.,  less  than  1-10 
of  \%  were  admitted  to  be  due  to  the  fault  of  the  employer; 
2,917  accidents,  or  71.5$,  to  the  hazard  of  the  industry,  and 
of  the  remaining  1,163  nearly  all  (1,036)  to  the  negligence 
of  the  injured  worker.1  This  seems  to  indicate,  first,  that 
the  art  of  accident  prevention  is  but  little  understood  in  the 
State  of  Minnesota,  and,  secondly,  that  the  employer  never 
admits  his  fault.  On  the  other  hand,  after  a  very  careful 
individual  investigation  of  each  of  the  410  fatal  accidents 
occurring  in  Pittsburgh,  Miss  Crystal  Eastman  found  the  fol- 

1  Twelfth  Biennial  Report  of  the  Bureau  of  Labor,  Industries,  and 
Commerce  of  the  State  of  Minnesota,  1909-1910;  pp.  135-88. 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS      75 

lowing  causes.2  (More  than  one  cause  being  given  in  some 
cases,  the  total  number  of  causes  given  exceeds  the  number 
of  accidents.) 

Accidents  in  which—  Number           Per  cent. 

Victim's  fault  was  indicated  132  times  or  26 . 3 

Fellow-workman's  fault    "  56      "      "    1^.2 

Foreman's  fault                 "  49      "      "70.8 

Employer's  fault                «  147      "      u/29.3 

None  of  these                    "  117     «      "   23.4 


501  100.0 

Here  the  number  of  unavoidable  accidents  is  reduced  to 
less  than  one-fourth,  while  the  •  employer  together  with  the 
foreman  is  the  largest  factor  in  the  causation,  nearly  two-fifths 
being  due  to  this  factor,  and  the  injured  workman's  share  is 
a  little  over  one-fourth. 

Keeping  these  limitations  in  mind,  let  us  turn  once  more 
to  the  German  figures  above  quoted,  and  analyze,  in  some 
detail,  the  meaning  of  the  employer's  fault  and  the  employee's 
fault. 

ACCIDENTS  DUE  TO  THE  EMPLOYER'S  FAULT 

1887  1897  1907 

Accidents  due  to—  Per  cent.         Per  cent.         Per  cent. 

Defective  apparatus  7.28  7.15  5.40 

Absence  of  safety  appliances 11.03  7.82  4.69 

Absence  of  proper  regulations 2 . 16  1 . 84  1 . 97 

20.47          16.81          12.06 

These  are  evidently  faults  of  the  organization  of  the  business 
whether  due  to  the  employer  personally  or  his  representatives. 
There  is  no  hurry  or  pressure  about  the  method  of  selecting 
machines  or  providing  them  with  necessary  safety  guards,  and 
if  a  machine  or  a  safety  appliance  get  out  of  order,  it  is  an 
evident  duty  of  the  management  to  correct  it.  The  same 
is  true  of  necessary  regulations  in  a  shop,  which  must  take 
the  existing  dangers  into  consideration.  But  it  is  quite  en- 
couraging to  note  that,  in  Germany  at  least,  the  improved 
system  of  factory  inspection  and  the  pressure  of  the  govern- 
ment directly  and  through  the  mutual  insurance  institutions 
indirectly  has  largely  done  away  with  defective  machinery, 
and  still  more  with  the  absence  of  safeguards.  In  twenty 
2  Crystal  Eastman :  Work  Accidents  and  the  Law,  p.  86. 


76  SOCIAL  INSURANCE 

years  the  change  was  perceptible  indeed,  as  these  causes  in 
1887  claimed  18.31$  of  all  accidents;  in  1897,  14.97$;  and 
in  1907,  10.09$,  a  decrease  of  nearly  50$  in  twenty  years. 

But  quite  a  different  picture  is  obtained  if  the  causes  of  the 
employee 's  negligence  or  fault  are  analyzed  in  greater  detail. 

PERCENTAGE  OF  INDUSTRIAL  ACCIDENTS  DUE  TO  CAUSES  CLASSIFIED 
AS  FAULT  OF  EMPLOYEE,  BY  NATURE  OF  FAULT 

1887  1897  1P07 

Accidents  due  to—                                          Per  cent.  Per  cent.  Per  cent. 

1.  Lack  of  skill,  inattention,  etc 17.09  20.85  28.96 

2.  Failure  to  use  existing  protective 

appliances 1.82          1.92          2.22 

3.  Actions  contrary  to  existing  regu- 

lations             5.35          5.44          9.48 

4.  Actions  of  horseplay,  mischief,  in- 

toxication              2.05          1.19          0.55 

5.  Unsuitable  clothing  (aprons,  neck- 

ties, etc.)  .25  .49  .05 


26.56        29.89        41.26 

A  great  deal  has  been  said  of  the  almost  criminal  negligence 
which  the  German  workman  has  developed  under  the  influ- 
ence of  the  too  liberal  compensation  system. 

But  what  do  we  find?  Actions  of  horseplay,  mischief,  in- 
toxication have  materially  decreased  within  the  twenty  years ; 
from  2$  they  have  decreased  to  scarcely  more  than  1-2$.  Un- 
suitable  clothing — a  sign  of  ignorance  or  carelessness — has 
almost  disappeared  as  a  cause.  Failure  to  use  existing  pro- 
tective appliances  has  increased  but  little,  and  that  may 
possibly  be  explained  by  the  increased  speed  which  is  often 
obstructed  by  safety  appliances. 

But  there  are  two  well-defined  groups  of  causes  which  have 
become  considerably  aggravated  during  this  period.  These 
are:  first,  "  lack  of  skill,  inattention,  or  carelessness,"  and, 
second, ' l  acts  contrary  to  rules,  regulations,  etc. ' '  As  against 
22.35$  in  1887,  these  two  causes  were  responsible  for  38.44$ 
of  all  accidents  in  1907,  a  proportionate  increase  of  nearly 
three-fourths  within  the  twenty  years.  Are  we  really  deal- 
ing here  with  an  increasing  factor  of  human  carelessness,  a 
phenomenon  of  human  degeneracy,  or  is  it  a  result  of  certain 
material  conditions  over  which  the  workman  may  have  little 
control ? 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS     77 

Lack  of  skill?  There  can  be  no  charge  that  the  German 
workman  is  losing  his  skill,  for  the  dominating  position  of 
German  industry  in  the  international  trade  sufficiently  dis- 
proves it. 

There  remain  inattention,  carelessness,  disregard  of  regu- 
lations. To  any  one  familiar  with  modern  industrial  conditions 
all  this  spells  one  word  "  speed."  Careful  attention  to  all 
possible  dangers,  care  in  execution  of  all  rules  and  regula- 
tions,— all  this  requires  time,  and  time  is  the  most  precious 
thing  in  a  modern  factory. 

The  increase  of  speed  in  the  shops  and  factories  has  been 
the  most  prominent  feature  of  the  industrial  development  dur- 
ing the  last  twenty  years,  so  that  a  priori  the  number  of 
accidents  due  to  this  cause  would  naturally  be  expected  to 
increase.  The  figures  but  corroborate  this  conclusion.  But 
inasmuch  as  speed  is  the  condition  of  production  over  which 
the  industrial  worker  has  very  little  control,  we  are  dealing 
here  with  a  factor  which  evidently  belongs  to  the  hazard  of 
industry.  In  each  individual  case  it  may  be  easy  to  point  to 
a  definite  motion  or  to  a  definite  act  of  commission  or  omis- 
sion which  brought  about  the  injury,  but  collectively  the  re- 
sponsibility falls  either  upon  the  condition  of  industry  or  upon 
that  party  to  the  industrial  contract  who  orders  the  degree  of 
speed  or  at  least  who  profits  by  it. 

Connected  with  the  factor  of  speed  is  the  factor  of  fatigue. 
That  fatigue,  like  speed,  of  itself  induces  lack  of  attention 
and  carelessness  has  been  established  beyond  any  dispute  by 
physiological  science.  For  attention  and  care  means  ability  of 
quick  reaction  to  stimulus  and  fatigue  diminishes  our  sensitive- 
ness to  stimulus.  And  as_speed  induces  fatigue,  speed  is 
doubly  responsible  for  the  accidents  due  to  inattention. 

Because  the  function  of  fatigue  in  increasing  the  frequency 
of  industrial  accidents  is  so  little  understood,  because  the 
majority  of  the  American  people  is  always  ready  to  explain 
the  accidental  injury  by  the  carelessness  of  the  workman,  it 
may  be  worth  while  to  dwell  a  little  longer  on  this  point.  An 
enormous  amount  of  very  valuable  material  concerning  this 
problem  is  presented  by  Dr.  Emory  L.  Bogardus  of  the  Uni- 
versity of  Chicago,  in  his  admirable  study  on  The  Relation  of 
Fatigue  to  Industrial  Accidents.3 

8  American  Journal  of  Sociology,  1911-1912. 


78  SOCIAL  INSURANCE 

As  Dr.  Bogardus  shows  by  numerous  references  to  medical 
literature,  there  are  two  important  physiological  effects  of 
excessive  effort.  First,  prolonged  muscular  activity  is  ac- 
companied by  an  actual  exhaustion  of  the  energy-yielding 
material  in  the  muscles,  and  secondly,  various  fatigue  sub- 
stances are  formed.  These  exert  a  poisonous  and  paralyzing 
effect  upon  the  whole  organism.  Because  of  this  using  up  of 
muscular  material,  and  because  of  the  accumulation  in  the 
muscle  of  the  fatigue  toxins,  a  given  group  of  working  mus- 
cles gradually  becomes  less  able  to  respond  to  the  demands 
made  upon  it.  Other  things  being  equal,  the  rate  at  which 
the  working  muscle  becomes  less  responsive  to  stimulation 
depends  (a)  upon  the  rapidity,  and  (b)  upon  the  difficulty 
of  the  given  piece  of  work.  The  nerve  apparatus  also  becomes 
less  efficient  in  guiding  the  working  muscles  because  of  the 
structural  changes  going  on  in  the  nerve  cells.  Another  fac- 
tor which  affects  the  efficiency  of  the  nerve  apparatus  in 
guiding  the  active  muscles,  is  the  poisoning  and  paralyzing 
effect  of  the  fatigue  substances  upon  the  nerve  tissue,  because 
these  substances  circulate  through  the  blood  and  affect  the 
brain  and  other  centers  of  nerve  control.  Thus  the  effect 
of  fatigue  becomes  a  double  one.  Not  only  do  the  muscles 
become  less  responsive  to  stimulation,  but  they  receive  less  and 
less  efficient  stimulation  from  the  nerve  centers. 

The  combined  effects  of  these  forces  result  in  increasing  mus- 
cular inaccuracy.  A  delay  in  promptness  of  reaction  and  a 
greater  number  of  faults  of  memory  and  attention  are  notice- 
able after  fatigue.  It  is  almost  impossible  to  be  attentive 
when  the  brain  is  fatigued.  The  length  of  time  that  ordinarily 
elapses  before  one  responds  with  the  hand,  for  example,  to  a 
touch  on  the  foot,  may  be  doubled  as  a  result  of  the  effect  of 
fatigue  on  attention. 

It  is  not  difficult  to  see  the  important  connection  between 
these  truths  of  physiological  science  and  the  causation  of  in- 
dustrial accidents.  "  The  chief  industrial  conditions  leading 
up  to  and  culminating  in  accidents, ' '  says  Dr.  Bogardus,  ' '  are 
those  of  monotony  and  speed  and  unrelaxed  tension  kept  up 
for  a  long  time."  This  process  seems  to  result  in  increasing 
numbers  and  extent  of  muscular  inaccuracies,  which  in  turn 
appear  to  be  the  phenomena  immediately  preceding  accidents. 
To  the  extent  that  the  stupefying  effect  of  monotony  and  the 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS      79 

confusion  attendant  upon  "  speeding  up  "  are  added  to  the 
regular  development  of  the  fatigue  process,  loss  of  muscular 
control  and  danger  of  accidents  are  increased.  The  strain  is 
materially  aggravated  by  long  hours.  And  when  men  and 
women,  kept  in  a  continuous  state  of  fatigue  because  of  long 
hours,  are  operating  dangerous  machinery,  the  situation  be- 
comes doubly  vicious.  But  long  hours  are  not  essential.  What 
the  modern  worker  gains  in  the  shortening  of  hours,  he  may 
more  than  lose  in  the  increased  intensity  of  labor.  For  under 
normal  conditions,  fatigue  may  be  overcome  by  adequate 
periods  of  rest,  but  in  modern  industry  the  workman  is  often 
denied  the  satisfaction  of  the  physiological  demands  of  fatigue. 
Thus  the  tendency  to  recoup  the  shortening  of  the  working 
day  by  reducing  the  lunch  period  may  have  serious  effects. 

Important  corroboration  as  to  the  effect  of  fatigue  is  found 
in  the  study  of  the  accidents  by  the  day  of  the  week  and  the 
hour  of  the  day.  In  this  respect  a  remarkable  similarity 
obtains  in  the  statistical  reports  of  all  countries  where  the 
problem  was  studied.  It  has  been  established  that  Monday 
shows  a  high  accident  rate.  It  is  usually  explained  by  the  use 
of  alcohol  on  Sunday  and  the  fatigue  following  the  Sunday 
celebration.  The  suggestion  has  never  been  offered  that 
changes  of  occupation  occur  usually  at  the  end  of  the  week 
and  the  new  work  is  begun  on  Monday,  and  the  lack  of  fa- 
miliarity with  the  new  machine  or  with  the  new  place  of  work 
is  a  fruitful  cause  of  accidental  injuries. 

But  much  more  significant  than  the  Monday  rate  is  the 
fact  that  beginning  with  Thursday,  the  accident  rate  is  con- 
tinuously rising,  until  it  reaches  the  highest  level  on  Saturday. 

RELATIVE  FREQUENCY  OF  ACCIDENTS  BY  DAY  OF  WEEK 
(The  average  number  of  accidents  per  day  is  taken  as  100.) 

Germany  Italy 

1907  1904 

Sunday    17.6  32.6 

Monday   118.6  112.0 

Tuesday 110.3  109.1 

Wednesday   .' 109.6  109.7 

Thursday 112.3  106.9 

Friday  114.0  113.9 

Saturday 117.6  115.7 

The  small  number  of  accidents  on  Sunday  is  easily  explained 
by  conditions  of  Sunday  rest  and  needs  no  further  comment. 


80  SOCIAL  INSURANCE 

The  difference  between  the  two  countries  may  be  explained 
by  greater  percentage  of  Sunday  work  in  Italy.  No  further 
explanation  suggests  itself.  But  the  essential  similarity  is  the 
comparatively  higher  rate  on  Monday  and  the  ascending  scale 
beginning  with  Thursday. 

The  effect  of  fatigue  is  demonstrated  by  another  interesting 
phenomenon  brought  out  by  accident  statistics;  namely,  the 
concentration  of  accidents  into  the  late  hours  of  the  forenoon 
and  again  in  the  late  hours  of  the  afternoon.  For  purposes 
of  accident  statistics  the  day  is  usually  divided  in  the  statis- 
tical reports  of  most  countries,  into  eight  three-hour  periods. 
Naturally,  comparatively  few  accidents  occur  between  6  P.M. 
and  6  A.M.  But  it  is  significant  that  about  twice  as  many 
accidents  occur  between  9  A.M.  and  12£>M.  as  between  6  A.M. 
and  9  A.M.,  and  again  twice  as  many  between  3  P.M.  and  6 
P.M.  as  between  12  M.  and  3  P.M. 

Now,  to  some  extent  this  is  due  to  the  fact  that  not  as  many 
persons  are  at  work  between  6  and  9  in  the  morning  as  between 
9  and  12,  because  all  workmen  do  not  begin  their  work  at 
6  A.M.,  and  again,  the  lunch  hour  falling  between  12  and  1, 
not  as  much  work  is  done  between  12  and  3  as  between  3  and 
6  in  the  afternoon,  but  evidently  the  difference  is  not  suffi- 
ciently great  to  explain  the  difference  in  accident  frequency. 

PERCENTAGE  OP  ACCIDENTS  OCCURRING  ACCORDING  TO  THE  TIME 

OP  THE  DAY 


Germany 

Italy 

Germany 

Italy 

12—  3A.M... 

1.93 

1.09 

12—  3  P.M... 

13.81 

14.55 

3—  6  A.M... 

2.55 

2.47 

3—  6  P.M... 

26.32 

26.48 

6—  9  A.M... 

13.87 

15.40 

6—  9  P.M... 

9.25 

7.83 

9—  12  A.M... 

28.42 

29.20 

9—12  P.M... 

3.85 

2.54 

Even  more  convincing  results  have  been  found  in  a  large 
number  of  special  investigations  in  the  United  States  and 
abroad.  Such  investigations  in  Illinois,  Wisconsin,  Minne- 
sota, and  Indiana;  in  France,  Germany,  Belgium,  England, 
and  Denmark,  all  establish  the  facts  of: 

(1)  A  marked  increase  of  accidents  during  the  forenoon, 

(2)  A  decided  fall  after  the  noon  period,  and 

(3)  Another  marked  rise  in  the  afternoon  period, 

and  the  conclusion  which  Dr.  Bogardus 4  draws  from  these 
*  American  Journal  of  Sociology,  January,  1912. 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS      81 

figures  is  one  of  the  well-established  maxims  of  accident 
statistics.  "  Continuous  work,  other  things  being  equal,  is 
accompanied,  hour  by  hour,  by  an  increasing  number  of  acci- 
dents, which  amply  justifies  the  broader  thesis — that  fatigue 
is  a  cause  of  industrial  accidents. ' ' 

Perhaps  the  final  results  of  Dr.  Bogardus '  investigation  may 
be  quoted  here.  Combining  the  data  of  accidents,  according 
to  hour,  of  twelve  independent  investigations,  he  obtained  the 
following  remarkable  series: 

DISTRIBUTION  OP  ACCIDENTS  ACCORDING  TO  TIME 

(Between  7  A.M.  and  6  P.M.) 
Combined  result  of  twelve  investigations  in  different  countries. 

Relative  Relative 

No.  No.  (a)  No.      No.  (a) 

7—  8  A.M 3732          68  1—2  P.M.       .     3914          72 

8—  9  A.M 4993          92  2—3  P.M.       .     5646        104 

9—10  A.M 6326        116  3—4  P.M.       .     7184        132 

10—11  A.M 7566        139                4^-5  P.M.       .     6533  120 

11—12  A.M 7068        130                5—6  P.M.       .     4834  89 

12—  1  P.M 2289          42  

60,085      

(a)  Average  per  hoar  is  taken  as  100. 

The  increase  from  8  to  11  and  from  1  to  4  is  striking,  un- 
mistakable. To  make  all  the  figures  strictly  comparable,  the 
assurance  would  be  necessary  that  on  an  average  the  same 
number  of  people  were  at  work  all  the  time,  which  is  not  the 
fact.  All  workers  do  not  begin  at  7,  nor  do  all  stop  for  lunch 
at  the  same  hour  of  12;  and  some  are  through  at  5,  while 
others  work  on  to  6.  But  with  all  that,  the  number  of  per- 
sons working  between  8  and  11  and  between  1  and  4  must  be 
fairly  uniform.  Combining  these  two  periods,  the  forenoon 
and  the  afternoon,  Dr.  Bogardus  obtains  the  following  results : 

Accidents  during  the  first  hour  (8 — 9  A.M.  and  1 — 2  P.M.)       9,113 

Second  hour  (9—10  A.M.  and  2—3  P.M.)   12,230 

Third  hour  (10—11  A.M.  and  3—4  P.M.)   15,064 

For  every  100  accidents  during  the  first  hour  there  were 
135  accidents  during  the  second  hour  and  165  during  the  third 
hour.  Thus,  out  of  400  accidents  at  least  100,  or  one-fourth, 
may  be  ascribed  to  this  one  factor  of  fatigue. 

But  perhaps  the  most  interesting  corroboration  of  the  fatigue 


82  SOCIAL  INSURANCE 

theory  is  found  in  a  very  interesting  analysis  that  has  been 
made  by  Italian  statisticians.  If  the  increase  of  the  accidents 
towards  the  end  of  the  week  and  likewise  towards  the  end 
of  the  day  is  due  to  fatigue,  then  the  women,  being  physically 
weaker  and  having  less  endurance,  should  show  a  higher  rate 
oF  increase  both  towards  the  end  of  the  day  and  the  end  of  the 
week.  This  analysis  by  sex  was  made  by  the  Italian  statis- 
ticians, and  the  results  have  fully  corroborated  this  hypothesis. 

PROPORTIONATE  NUMBER  OF  ACCIDENTS  BY  HOURS  OF  THE  DAY  FOR 
MALES  AND  FEMALES  IN  ITALY 

Males  Females  Males  Females 

12—  3  A.M.  8.87  6.78  12—  3  P.M.  117.14  105.16 

3—  6A.M.  21.54  11.93  3—  6  P.M.  206.80  224.12 

6—  9  A.M.  123.34  118.97  6—  9  P.M.  62.03  72.82 

9—12  A.M.  238.46  250.67  9—12  P.M.  21.21  6.78 

PROPORTIONATE  NUMBER  OF  ACCIDENTS  BY  DAY  OF  THE  WEEK  FOR 
MALES  AND  FEMALES  IN  ITALY 

Males  Females 

Sunday    30.02  10.84 

Monday   112.21  109.67 

Tuesday  109.20  108.49 

Wednesday   109.83  113.00 

Thursday 106.65  110.85 

Friday  113.59  118.16 

Saturday  114.46  129.24 

We  may  sum  up  here  the  conclusions  we  have  arrived  at 
from  the  study  of  the  causation  of  industrial  accidents.  It 
was  found: 

1.  That   industrial  injuries  are   a  serious  and  important 
characteristic  of  modern  industry. 

2.  That  the  accidental  nature  of  these  injuries  is  denied  by 
the  definite  accident  rate  of  various  branches  of  industry. 

3.  That  three  accident  classes  are  recognized;  those  due 
to  the  general  hazard  of  the  industry,  to  the  fault  of  the  in- 
jured, and  the  fault  of  the  employer,  whose  comparative  im- 
portance is  in  the  order  named. 

4.  That  the  general  hazard  of  the  injury  is  simply  another 
term  for  unpreventable  accidents,  for  which  under  a  definite 
status  of  knowledge  and  practice  no  sure  methods  of  preven- 
tion are  as  yet  available,  and  therefore   the   responsibility 
cannot  be  located. 

5.  That  the  accidents  due  to  the  employer's  negligence  are 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS      83 

v 

accidents  due  to  the  faults  of  appliances  or  methods  of  pro- 
duction. 

6.  That  the  accidents  due  to  the  fault  of  the  injured  are 
mainly  caused  by  inattention  and  inobservance  of  rules,  which 
may  be  easily  explained  by  two  important  conditions:  speed 
and  fatigue,  and 

7.  That  the  study  of  the  time  of  occurrence  of  accidents 
corroborates  the  theory  of  fatigue,  so  that 

8.  While  large  numbers  of  industrial  accidents  are  prac- 
tically bound  to  occur,  and  therefore  may  in  a  certain  sense  all 
be  ascribed  to  the  hazard  of  the  industry,  yet  this  unprevent- 
ableness  of  the  accidents  is  only  a  manifestation  of  the  condi- 
tions of  the  mechanical  and  economic  organization  of  indus- 
try at  the  particular  time. 

Inevitably  serious  misgivings  arise  as  to  the  future.  How 
far  shall  this  increase  of  fatalities  and  injuries  go?  The 
reader  must,  therefore,  be  warned  at  the  outset  that  only 
one  tendency  has  been  studied,  and  that  side  by  side  with  it 
works  another  towards  accident  prevention — though  with 
a  different  intensity  in  every  country,  and  perhaps  with 
very  indifferent  results  in  some.  The  whole  subject  of  acci- 
dent prevention  is  so  complex  and  requires  so  much  tech- 
nical knowledge  that  it  cannot  be  treated  in  this  study 
except  incidentally,  in  so  far  as  it  may  affect  or  be  affected 
by  the  problem  of  compensation  insurance.  The  final  re- 
sults, however,  of  the  struggle  between  these  two  influences, 
are  of  grave  importance  to  our  problem.  It  is  oftenV 
charged  against  the  system  of  accident  compensation  that  it\ 
has  failed,  because  under  it  the  number  of  accidents  has  in- / 
creased.  Many  explanations  are  offered  for  this:  increased/ 
carelessness  on  the  part  of  the  workman  who  is  sure  of  his  com- 
pensation, malingery,  and  even  self-infliction  of  injuries.  It 
is  evident  that  industrial  development  in  itself  contains  the 
explanation  for  the  increase  of  accidents,  and  when  this  in- 
fluence is  not  counteracted,  the  number  of  accidents  actually 
shows  a  rapid  increase.  But  for  a  scientific  answer  to  the 
inquiry  the  more  thorough  European  statistics  must  be  care- 
fully studied,  as  was  done  by  Dr.  H.  J.  Harris 5  for  Germany, 

6  The  Increase  in  Industrial  Accidents,  by  H.  J.  Harris.  Quarterly 
Publications  of  the  American  Statistical  Association,  March,  1912  (Vol. 
XIII,  1-28). 


84  SOCIAL  INSURANCE 

Austria,  and  Great  Britain.  By  means  of  an  elaborate  pres- 
entation of  statistical  data,  he  is  able  to  arrive  at  the  following 
conclusion : 

"In  Germany,  Austria,  and  Great  Britain,  the  serious  accidents, 
namely  those  causing  death  or  permanent  disablement,  show  a  tend- 
ency to  decrease.  The  progress  in  the  movement  for  reducing  the 
risk  of  industry,  therefore,  has  resulted  in  distinctly  reducing  the  risk 
of  death  or  permanent  disablement,  but  has  not  yet  diminished  the 
risk  of  temporary  disablement." 

It  is  hoped  that  the  preceding  pages  have  furnished  sufficient 
evidence  of  the  great  importance  of  accident  statistics.  Not 
only  for  the  proper  scientific  understanding  of  the  nature  of 
industrial  accidents,  but  at  least  for  two  pracf ^1  IffiW1**  flrft 
Accident  statistics  absolutely  necessar^y  An  efficient  campaign 
loTprevehtion  of  industrial  accidents,  or  at  least  for  the  reduc- 
tion of  their  number,  is  imrx>ssible  without  a  thoroughly 
statistical  study  of  its  causes^yAnd  a  proper  organization  of 
accident  insurance,  is  equally  dependent  upon  accident  statis- 
tics. A  glimpse  of  a  few  of  the  more  important  results  of 
accident  statistics  in  many  European  countries  indicates  the 
wealth  of  information  there  collected.  The  United  States  have 
almost  nothing  to  show  that  would  at  all  approach  this.  ('\ O 

Very  few  states  collect  any  accident  statistics  at  all,  in  still 
fewer  of  them  are  they  properly  analyzed  and  studied,  in 
none  of  them  is  the  number  of  accidents  reported  at  all  near 
the  actual  number  occurring,  and  in  each  of  them  they  are 
gathered  and  elaborated  in  a  different  way. 

For  this  reason  the  movement  which  has  grown  within  the 
last  year  or  two  among  American  statisticians,  economists, 
and  representatives  of  Labor  Bureaus  for  a  uniform  system  of 
accident  statistics  deserves  mention  here.  The  movement  origi- 
nated within  the  American  Association  for  Labor  Legislation, 
and  was  made  the  subject  of  two  conferences,  as  a  result  of 
which  a  very  detailed  standard  schedule  was  prepared  for 
accident  reporting.  Even  a  glance  at  this  schedule  will  demon- 
strate what  a  complex  event  an  industrial  accident  is.  It 
contains  altogether  nearly  sixty  distinct  queries,  as  to  the  em- 
ployer, industry,  time,  and  place  of  accident ;  as  to  the  social, 
economic,  and  industrial  status  of  the  injured  employee;  the 
cause  of  the  accident  and  manner  in  which  it  occurred,  the  re- 


THE  CAUSES  OF  INDUSTRIAL  ACCIDENTS     85 

suiting  injury,  the  nature  of  medical  aid,  subsequent  effect 
upon  earning  capacity,  and  final  effect.  The  importance  of  a 
universal  adoption  of  this  schedule  by  all  the  states  of  this 
country  is  very  great.  But  perhaps  no  less  is  the  uniform 
elaboration  and  presentation  of  the  results  obtained  from  these 
uniform  reports  to  be  desired. 


CHAPTER  VI 
THE  INDICTMENT  OF  EMPLOYER'S  LIABILITY 

IN  the  preceding  pages  we  were  piling  up  gruesome  figures 
but  said  nothing  of  the  enormous  amount  of  physical  suf- 
fering which  these  figures  bore  witness  to.  We  will  waive  this 
aspect  of  industrial  accidents  entirely  and  devote  ourselves 
to  their  economic  effects,  which  must  be  enormous,  unless  they 
are  instantly  met.  As  they  have  been  met  in  almost  all  Euro- 
pean countries  for  many  years,  European  experience  at 
present  may  offer  little  for  the"  study  of  economic  misery  re- 
sulting from  industrial  accidents.  But  in  the  United  States, 
where,  until  a  very  few  years  ago,  almost  the  whole  burden 
fell  upon  the  workmen  and  their  families,  industrial  accidents 
were  admitted  by  all  students  to  be  one  of  the  most  important 
causes  of  poverty. 

No  large,  comprehensive  investigation  of  this  problem  has 
ever  been  undertaken,  nor  does  it  seem  to  be  necessary,  as  the 
situation  is  quite  obvious  except  for  its  quantitative  meas- 
urement. A  few  investigations  on  a  very  small  scale  give 
an  indication  of  the  effects  of  grave  accidents  upon  the  eco- 
nomic status.  Thus,  the  New  York  Commission  on  Employer's 
Liability  investigated  186  families  of  married  men  killed  by 
accidents.1  Ninety-three  of  the  widows  had  gone  to  work  to 
support  their  families ;  in  nine  families  children  under  sixteen 
had  gone  to  work;  in  thirty-seven  families  the  rent  was  re- 
duced; thirty-three  families  had  received  aid  from  fellow- 
workmen  of  the  deceased,  from  relatives  and  friends,  or  from 
charity.  Ten  families  were  found  destitute.  Here  we  have  the 
economic  results  in  a  nutshell.  If  multiplied  by  the  necessary 
factor,  to  account  for  the  30,000  fatal  and  at  least  400,000 
grave  accidents  occurring  each  year,  they  would  mean  thou- 

1  Report  to  the  Legislature  of  the  State  of  New  York  by  the  Com- 
mission appointed  under  chapter  518  of  the  laws  of  1909  to  inquire  into 
the  -question  of  employer's  liability  and  other  matters.  First  Report, 
p.  27. 


INDICTMENT  OF  EMPLOYER'S  LIABILITY      87 

sands  of  widows  and  children  annually  sent  to  work,  thou- 
sands of  families  thrown  upon  private  and  public  charity, 
thousands  of  families  reduced  to  destitution,  and  tens  of 
thousands  with  a  material  reduction  of  the  standard  of 
living.  That  evidently  is  the  inevitable  result,  unless  a  system 
of  compensation  exists,  or  any  other  effective  method  of  shift- 
ing the  burden  of  the  economic  loss  from  the  injured  employee 
or  his  family  to  some  one  else. 

In  Europe,  as  in  the  United  States,  when  the  problem  of 
compensation  firsit  presented  itself,  many  objections  were 
X  raised  against  it.  perhaps  the  most  persistent,  most  tenacious, 
was  the  legal  argument,  which  reduced  itself  to  this:  that 
for  an  industrial  accident  either  the  employee  or  employer 
was  responsible:  that  in  the  former  case  he  was  himself  to 
blame  for  his  carelessness,  and  it  was  just  that  he  should  suffer 
for  it,  and  that  if  the  employer  was  to  blame,  the  injured 
employee  had  ordinary  legal  redress  in  court,  as  has  everx 
human  being  when  damage  was  caused  to  him  by  another/ 
As  this  argument  is  still  very  much  alive,  it  is  necessary  to 
examine,  in  as  simple  and  untechnical  a  way  as  possible,  the 
legal  rights  which  the  workman  has  to  force  from  his  employer 
payment  of  damages  in  case  of  industrial  accidents. 

In  most  European  countries,  the  principle  of  the  so-called 
Code  Civil  (the  Napoleonic  Code)  was  applicable  to  this  situa- 
tion. In  England  and  in  the  United  States,  the  English 
Common  Law  regulates  these  relations,  as  modified  by  special 
enactments.  While  both  legal  systems  were  decidedly  insuf- 
ficient to  reach  the  economic  problems  arising  out  of  industrial 
accidents,  there  nevertheless  is  a  very  serious  difference  be- 
tween the  two,  a  difference  very  much  against  the  Anglo- 
American  system  of  common  law. 

The  principles  of  the  Code  Civil  applicable  to  industrial, 
accidents  and  fairly  uniform  in  the  codes  of  France,  Belgium, 
Italy,  Holland,  Switzerland,  and  other  countries,  do  not  refer 
to  industrial  accidents  specifically.  They  are  simply  the 
fundamental  principles  of  legal  responsibility  for  damage 
caused  by  one  person  to  another.  In  other  words,  they  estab- 
lish the  responsibility  for  fault.  Specifically  they  provide : 

(1)  That  any  damage  done  by  one  person  to  another  must 
be  repaired  by  the  one  who  is  at  fault; 

(2)  That  he  is  not  only  responsible  for  damages  which  he 


88  SOCIAL  INSURANCE 

has  done  by  his  act,  but  also  by  his  negligence  and  imprudence, 
and 

(3)  That  he  is  likewise  responsible  for  injuries  caused  by 
the  act  of  persons  for  whom  he  is  responsible,  or  by  things 
which  are  in  his  charge,  this  contingent  liability  covering 
the  acts  of  agents,  wards,  and  servants. 

On  the  basis  of  these  legal  principles,  an  injured  employee 
may  prosecute  in  court,  in  a  manner  similar  to  all  civil  law- 
suits, a  claim  against  his  employer,  if  he  can  establish  that  the 
accident  causing  his  injury  was  due  to  the  employer's  fault,  a 
fault  either  of  omission  or  commission.  In  the  light  of  the 
general  results  of  accident  statistics,  the  law  as  pronounced  in 
these  articles  is  applicable  only  to  a  portion  of  them — as  to 
how  big  a  portion  individual  opinions  will  differ.  An  impartial 
investigation  by  outside  experts  seems  to  point  to  about  one- 
fourth  of  all  accidents  due  to  the  employer's  fault.  But  such 
an  expert  opinion  is  very  different  from  a  judicial  proof, 
and  the  burden  of  proof  under  the  Code  Civil  lies  upon  the 
claimant,  the  injured,  as  it  does  in  all  other  civil  suits.  The 
liability  as  established  by  the  Code  Civil  does  not  in  any  way 
differentiate  between  an  employee  and  an  outside  person 
who  may  be  injured.  It  does  not  apply  to  the  accidents  due 
to  the  injured  person 's  own  fault  or  negligence  or  to  the  vast 
majority  of  accidents  due  to  the  ordinary  hazards  of  industry. 
It  has  been  stated  in  France,  officially,  that  under  this  law 
about  one  in  ten  accidents  resulted  in  compensation. 

Similar  to  the  Code  Civil,  our  English  Common  Law  of 
Employer's  Liability  for  personal  injuries  to  the  employee, 
is  based  exclusively  upon  what  the  lawyers  define  as  "  tort," 
a  wrong,  a  fault  of  either  commission  or  omission.  But  in 
distinction  to  the  Code  Civil,  Common  Law,  under  the  in- 
fluence of  certain  early  decisions  of  British  judges,  puts 
further  limitations  upon  the  rights  of  the  employee  as  com- 
pared with  the  rights  of  an  outsider,  by  creating  special 
/  defenses,  i.e.,  special  conditions  under  which  an  employer  can 
waive  his  responsibility  to  the  employee,  which  he  could  not 
apply  in  case  of  injury  to  an  outsider.  During  the  last 
few  years,  because  of  the  agitation  for  accident  compensa- 
tion in  the  United  States,  so  much  has  been  written  in  explana- 
tion of  our  Common  Law  of  Employer's  Liability  that  perhaps 
it  is  not  necessary  to  go  into  great  detail  in  this  place.  It 


INDICTMENT  OF  EMPLOYER'S  LIABILITY      89 

is  sufficient  to  quote  one  of  the  best  brief  statements  of  the 
doctrine  we  are  able  to  find.2 

"The  Common  Law  of  employer's  liability  for  personal  injuries 
to  employees  is  based  exclusively  upon  the  idea  of  tort  or  wrong. 
Roughly  outlined,  its  general  rules  (with  minor  variations  in  par- 
ticular states)  are  as  follows:  The  employer  is  liable  to  an  employee 
for  full  damages  for  any  personal  injury  proximately  due  to  the 
employer's  negligence  or  wrongful  act.  It  is  the  employer's  due  to 
exercise  ordinary  care  in  his  operations,  in  his  relations  with  his 
employees,  and  in  the  selection  of  co-employees  and  to  provide  ordi- 
narily safe  working  places  and  conditions  and  ordinarily  safe  tools, 
machinery,  etc.,  allowing,  however,  for  the  nature  of  the  employment. 
The  risks  of  employment,  unavoidable  by  such  means,  the  employee 
is  deemed  to  have  assumed  and  for  injuries  resulting  therefrom  there 
is  no  liability  (riil^  Qf^^ssn_rpption  of  ordinary  risks).  But  even  if 
the  employer  fails  in  his  duty,  yet  if  the  employee  with  knowledge 
of  such  faults  nevertheless  continues  in  the  employment,  he  is  deemed 
to  have  assumed  the  risks  therefrom,  and  if  injured  thereby,  the 
employer  is  relieved  from  liability  (defense  of  assumption  of  risks). 
If  an  injury  results  from  the  wrong  or  fault  of  a  co-employee,  unless 
the  employer  has  failed  to  exercise  due  care  in  his  selection,  or  such 
co-employee  is  in  fact  the  employer's  alter  ego  and  charged  with  his 
duties  as  such,  the  employer,  being  without  fault,  is  not  liable  (fellow- 
servant  rule,  generally  called  the  jefense  of  fellow-servants^or  co- 
employee's  fault).  If  the  injury  results  in  part  from  the  em- 
ployer's fault,  but  the  injured  employee's  fault  contributes  thereto 
so  that  the  injury  would  not  have  occurred  without  it,  the  employer 
is  relieved  from  all  liability  (defense  fvP  nnnfrihi^nry  negligence). 
If  the  injury  is  fatal  the  employer  escapes  liability,  because  although 
he  has  done  a  wrong,  it  is  deemed  personal  to  the  injured  employee, 
so  that  no  cause  of  action  therefore  survives  his  death.  (This  rule, 
however,  has  been  so  long  and  generally  changed  by  statute,  that  it 
is  now  the  common  rule  that  the  cause  of  action  survives  in  favor 
of  next  of  kin,  etc.)  Finally  the  burden  of  proof  as  to  all  points  ^ 
is  upon  the  injured  party,  and  in  some  states  he  has  the  additional 
burden  of  proving  absence  of  contributory  negligence." 

It  is  difficult  to  find  a  more  eloquent  example  of  an  essential 
contradiction  between  the  principles  of  common  law  and  ordi- 
nary conceptions  of  justice.  Not  only  is  the  abstract  principle 
of  individual  responsibility  carried  to  its  utmost  extreme 
without  any  consideration  as  to  its  social  results,  but  this  logic 
is  decidedly  one-sided.  For  under  the  doctrines  of  assump- 
tion of  risk  and  contributory  negligence,  one  side,  the  stronger 

2  By  Professor  E.  Freund,  of  Chicago  University :  American  Labor 
Legislation  Review,  October,  1911,  pp.  89-90. 


90  SOCIAL  INSURANCE 

side,  entirely  escapes  its  responsibility  for  its  acts,  because  the 
entire  responsibility  is  placed  upon  the  other  side. 

'          It  is  no  exaggeration  to  say  that  under  the  common  law,  in 

^/  its  pure  form,  as  stated  above,  only  in  very  exceptional  cases 
could  an  injured  workman  expect  to  obtain  damages  from  his 
employer.  Even  when  there  is  employer's  fault,  the  three 
defenses,  and  especially  those  of  assumption  of  risk  and  con- 
tributory negligence,  would  apply  in  the  majority  of  cases, 
and  in  the  remaining  the  difficulty  of  establishing  proof  of 
employer's  fault  would  be  enormous. 

It  is  quite  natural,  therefore,  that  the  improvement  of  the 
legal  status  of  the  employee  suffering  from  an  industrial  in- 
jury was  one  of  the  first  concerns  of  a  rising  labor  movement. 
It  expressed  itself  in  England  and  in  the  United  States  in 
efforts  to  limit  these  three  so-called  '  *  defenses. ' ' 

Scarcely  a  year  has  passed  in  the  United  States  for  the  last 
twenty-five  years,  without  some  legislation  on  this  topic  Of 

r/  employer's  liability.  In  each  of  the  fifty  states  separate  acts 
were  and  are  passed  concerning  each  one  of  the  separate  * '  de- 
fenses," often  changing  the  legal  rules  in  a  few  or  only  one 
industry  at  a  time.  It  would  be  quite  impossible  to  give 
here  even  a  brief  outline  of  the  present  status  of  employer's 
liability  as  affected  by  these  legislative  enactments.  Only 
the  general  tendencies  may  be  commented  upon  here. 

In  abolishing  or  limiting  the  so-called  defenses,  new  legisla- 
tion was  only  attacking  the  weakest  points  in  the  old  system 
of  employer's  liability.  It  was  improving  the  chances  of  the 
injured  workman  to  recover  in  some  cases,  but  left  the  ma- 
jority of  cases  undisturbed. 

v  Thus,  there  was  the  famous  or  perhaps  infamous  defense  of 
the  fellow-servant.  From  the  standpoint  of  purely  formal 
justice  it  was  argued  that  in  no  way  could  or  should  the 
employer  be  held  responsible  for  the  injury  caused  by  one 
employee  to  another.  If  one  workman  did  so  injure  his  fellow, 
how  was  the  employer  to  be  blamed?  And  if  blameless,  why 
should  he  be  mulcted  in  damages  ?  But  in  a  modern  corpora- 
tion, when  all  living  beings  are  employees,  and  the  employer 
a  soulless  corporation,  that  doctrine  alone  was  enough  to  make 
recovery  of  damages  impossible  in  any  case.  Even  if  the 
engineers  and  firemen  of  railroad  trains  were  killed  by  a 
head-on  collision  because  of  the  mistake  of  a  telegrapher,  their 


INDICTMENT  OP  EMPLOYER'S  LIABILITY      91 

families  could  not  recover  damages  because  of  the  fellow- 
servant  doctrine.  And  so  the  ^lqw-s^ry^LiLt--4elefise  was 
gradually  limited  by  excepting  the  employees  acting  in  an  ad- 
ministrative capacity,  so  that  they  ceased  to  be  fellow-servants 
for  the  purpose  of  defense;  or  again  employees  of  different 
departments  of  the  same  establishment  were  pronounced  not 
to  be  fellow-servants,  or  the  doctrine  was  abolished  altogether, 
either  for  certain  industries  or  for  all  employments. 

Still  more  unjust  is  the  doctrine  of  ^asfinrnp-Hnn — #£• 
risk^,  which  is  based  upon  a  purely  hypothetical  con- 
*"1sideration,  that  the  wage-worker  is  a  free  individual,  who 
is  at  liberty  to  throw  up  any  employment  containing 
special  elements  of  danger;  while,  as  a  matter  of  fact, 
no  sane  man  can  claim  that  the  average  workman  is  in  a 
position  to  refuse  employment  just  because  it  is  dangerous, 
or  because  his  employer  is  not  as  careful  as  some  other  em- 
ployer. As  applied  in  some  states,  even  a  criminal  disregard 
by  the  employer  of  laws  regarding  certain  precautions  or 
safety  devices  did  not  make  him  liable  for  damages  as  long 
as  he  could  prove  that  the  workman  knew  of  the  danger  implied 
and,  therefore,  assumed  the  risk.  Nor  can  there  be  any  differ- 
ence of  opinion  as  to  the  essential  injustice  of  the  rule  of 
contributory  negligence,  which  declares  that  when  both  em- 
ployer and  employee  were  at  fault,  the  employer  is  not  liable 
at  all,  so  that  the  entire  loss  of  accident  falls  upon  the  injured 
employee. 

But  even  if  all  the  three  defenses  had  been  abolished  alto- 
gether in  all  the  states,  which  they  were  not,3  and  even  if  none 
of  the  acts  had  been  declared  unconstitutional,  which  was  the 
fate  of  many  of  them,  all  this  legislation  could  not  have  solved 
the  question  of  industrial  accidents,  if  the  proper  solution  were 
admitted  to  be  the  guarantee  of  compensation  in  all  accidental 
injuries,  for  the  principle  of  fault  was  left  intact. 

What  were  the  economic  effects  of  this  system  of  employer 's 
liability?  While  many  large  volumes  have  been  written 
devoted  to  the  minutest  description  of  the  legal  differences  be- 
tween one  state  and  another,  the  economic  results  were 
scarcely  studied  until  very  recently,  and  when  studied  were 
found  to  be  substantially  uniform  throughout  the  United 

8  The  condition  before  the  adoption  of  the  compensation  acts  by  any 
state  is  discussed  here. 


92 


SOCIAL  INSURANCE 


States,  except  as  to  quantitative  differences  between  one  state 

/       and  another. 

V  '*  The  first  important  result  naturally  was  that  a  vast  majority 
of  the  accidents  remained  altogether  uncompensated.  In  the 
nature  of  things  no  statistics  on  this  point  are  available.  For 
'  even  if  all  lawsuits  arising  from  employer's  liability  were 
studied,  that  would  not  give  any  reliable  relation  of  the 
accidents  compensated.  Naturally  only  those  cases  reach  the 
courts  where  the  injured  employee,  or  rather  his  attorney, 
see  any  reasonable  chance  of  establishing  the  liability  before 
the  law.  On  the  other  hands,  many  cases,  where  the  employer's 
attorneys  recognize  the  existence  of  liability,  are  settled  out 
of  court,  because  they  may  be  settled  cheaper.  Thus  the  New 
York  State  Employers'  Liability  Commission  has  endeavored 
to  ascertain  this  point  from  data  accumulated  by  liability 
insurance  companies,  with  the  following  results  covering  the 
three  years  1906-1908 :  4 


9  companies  reporting  em- 
ployer's   liability    sepa- 

Number  of 
injuries 
reported 

414,681 

Number  of 
injuries  for 
which  pay- 
ment was 
made 

52,427 

Percentage 
of  injuries 
paid  for 

12.64 

Number  of 
injuries  re- 
ported for 
one  paid 
for 

7.99 

279,531 

36,414 

13.02 

7.67 

14  companies  reporting  .  . 

694,212 

88,841 

12.78 

7.81 

(a)  For  these  companies  all  forms  of  liability  insurance,  i.e.,  in  addition  to 
employer's  liability,  also  the  liability  of  an  employer  to  outsiders  injured  (so-called 
public  liability),  real  estate  owners'  liability,  automobile  liability,  etc.,  are  included. 
For  this  reason  these  companies  show  a  slightly  higher  percentage  of  injuries  paid 
for.  But  as  the  employer's  liability  constitutes  for  all  companies  very  much  the 
larger  part  of  all  liability  insurance,  there  is  no  objection  to  using  their  data. 

It  is  true  that  the  use  of  these  figures  has  been  objected  to  by 
some  representatives  of  liability  insurance  companies,  on  the 
ground  that  the  injuries  reported  include  a  large  proportion 
of  very  trivial  ones,  which  have  caused  no  perceptible  eco- 
nomic loss  to  the  insured,  and  every  one  who  is  familiar  with 
the  business  of  liability  insurance  will  admit  the  justice  of  this 
contention.  But  after  all,  even  if  some  25$  of  such  injuries 
were  in  that  class,  or  even  50$ — which  is  highly  improbable— 
the  essential  fact  would  still  remain  that  the  vast  majority  of 
injuries  are  not  paid  for  at  all. 

4  Report,  etc.,  p.  87. 


INDICTMENT  OF  EMPLOYER'S  LIABILITY      93 

Because  of  these  and  similar  figures  it  has  often  been  as- 
sumed in  the  United  States  that  the  liability  companies  are 
primarily  responsible  for  the  low  percentage  of  accidents  paid 
for.  As  a  matter  of  fact  it  is  extremely  likely  that  the  per- 
centage is  very  much  less  for  injuries  outside  the  practice  of 
liability  companies.  For  one  thing,  the  employer  is  often 
much  more  favorably  inclined  to  the  claimant  because  his 
premiums  to  the  liability  company  have  been  paid  and  he  has 
nothing  more  to  lose.  The  injured  employee  is  much  less 
afraid  to  sue  his  employer  when  a  liability  company  stands 
behind  him,  and  is  often  encouraged  by  his  benevolent  em- 
ployer to  press  his  claim.  The  juries  are  much  more  inclined 
to  be  liberal  with  the  plaintiff  when  the  real  defendant  is  an 
insurance  company.  It  is  for  these  reasons  that  liability 
companies  usually,  though  seldom  successfully,  stipulate  that 
their  relations  with  the  employer  remain  a  confidential  matter. 
Finally,  the  liability  company  is  more  anxious  to  settle  a  suit 
or  prevent  a  suit  by  compromising  a  claim  because  it  is 
solvent,  while  a  small  employer  derives  strength  from  his 
financial  weakness.  is 

2.  The  amount  of  compensation  when  ootained  is  usually     ^  / 
small  and  seldom  bears  any  proper  relation  to  the  gravity  of      V 
injury  or  need. 

Occasionally  we  are  startled  by  the  very  large  and  undoubt- 
edly sometimes  even  excessive  amounts  of  damages  awarded. 
Not  many  of  these  verdicts  survive  when  they  reach  our  Court 
of  Appeals,  but  some  do.  They  are  in  the  nature  of  punitive 
damages,  and  there  is  no  doubt  that  in  many  cases  the  punish- 
ment for  carelessness  of  the  employer  is  well  deserved.  But 
punishment  is  evidently  not  the  object  of  social  legislation. 

Yet  such  high  verdicts  are  rare,  and  the  majority  are  very 
much  lower ;  and  unable  to  meet  the  high  cost  of  litigation  with 
a  delay  of  several  years  and  the  uncertainty  of  a  verdict,  the 
injured  or  his  dependents  usually  accept  ridiculously  small 
amounts  fu-  the  injury  sustained.  This  generally  known  fact 
is  at  present  supported  by  several  investigations. 

Out  of  227  fatal  cases  for  which  information  was  obtained 
by  the  New  York  State  Liability  Commission,  93,  or  41$,  re- 
ceived no  compensation,  and  23,  or  10$,  less  than  $100 ;  72,  or 
33$,  received  $100  to  $500;  16,  or  7$,  from  $500  to  $1,000; 
11,  from  $1,000  to  $2,000;  9  from  $2,000  to  $5,000,  and  3  over 


94  SOCIAL  INSURANCE 

$5,000.  The  three  cases  with  a  considerable  compensation,  or 
even  the  twelve  with  compensation  over  $2,000,  present  no 
remedy  for  the  40$  of  cases  not  compensated,  and  43$  com- 
pensated with  a  very  small  amount.  The  average  compensa- 
tion for  fatal  accidents  as  computed  by  the  New  York  Com- 
mission, taking  only  compensated  cases  into  consideration,  was 
$922,  and  if  all  the  cases  are  considered,  it  was  only  $551, 
but  even  such  a  pitiful  average  would  have  been  better  than 
the  uneven  distribution  of  compensation  paid.  Of  course, 
when  legal  liability  existed,  and  when  the  workman  had  both 
the  necessary  means  and  character  to  prosecute  his  claim,  the 
compensation  was  considerable,  but  such  cases  were  few.  When 
there  was  a  settlement  without  suit  the  average  amount  was 
about  $700.  Under  a  settlement  out  of  court  after  suit  has  be- 
gun, the  average  amount  was  nearly  $1,500,  and  when  damages 
were  recovered  the  average  amount  was  over  $5,000.  But  there 
were  81  cases  of  the  former,  23  of  the  second,  and  only  7  cases 
of  the  last  group.  A  good  deal  to  a  very  few  and  nothing  or 
very  little  to  most,  seems  to  be  the  principle  upon  which  the 
liability  system  worked  itself  out.  Similar  results  have  been 
recorded  wherever  the  same  problem  has  been  studied.  Miss 
Crystal  Eastman  found  that  out  of  323  fatal  cases,  in  the 
Pittsburg  districts,  in  89,  or  28$,  the  families  received  no  com- 
pensation at  all ;  in  113,  or  35$,  less  than  $100 ;  in  61,  or  19$, 
from  $100  to  $500 ;  and  in  41,  or  13$,  from  $500  to  $1,000,  and 
only  in  19,  or  6$,  over  $1,000.  The  situation  was  even  worse 
as  far  as  non-fatal  but  permanently  disabling  injuries  were 
concerned. 

There  is  no  doubt  that  the  situation  in  Pennsylvania  is 
rather  worse  than  that  in  many  other  states.  But  essentially 
the  situation  is  the  same  everywhere  wh^re  a  liability  system 
persists.  In  Wisconsin,  for  instance,5  according  to  an  investi- 
gation of  the  local  Bureau  of  Labor  and  Industrial  Statistics, 
out  of  51  cases  of  fatal  accidents,  16  received  AV°SS  than  $100, 
18  from  $100  to  $500,  9  from  $500  to  $1,000,  aid  8  from 
$1,000  to  $3,000.  In  two-thirds  of  the  cases  the  amount  re- 
ceived was  too  small  to  have  any  perceptible  economic  effect. 
Naturally  the  situation  was  not  much  better  in  non-fata!  in- 
juries. In  434  cases  the  compensation  granted  by  the  em- 

6  Thirteenth  Annual  Report  of  the  Wisconsin  Bureau  of  Labor  arid 
Industrial  Statistics,  1908,  p.  54. 


INDICTMENT  OF  EMPLOYER'S  LIABILITY      95 

ployer  was  as  follows:  Nothing  in  100  cases,  or  23$;  doctor's 
bill  only  170  cases,  or  39$;  something  but  not  doctor's  bill, 
63  cases,  or  15$;  something  in  addition  to  doctor's  bill,  101 
cases,  or  23$. 

In  Michigan  the  results  of  68  trials  of  liability  suits  in  non- 
fatal  cases  were  studied,  showing  a  total  recovery  of  $45,745, 
or  $675  per  case.  This  showing  seems  rather  satisfactory 
until  it  is  further  analyzed,  when  it  is  found  that  32,  or  nearly 
one-half,  of  the  cases  received  nothing,  while  in  8  cases  the 
amount  was  $3,000,  and  in  4  of  these  $5,000  or  over.6 

In  Minnesota,  out  of  54  cases  of  fatal  injuries,  14  were  not 
compensated  at  all,  7  received  $100  or  less,  13  from  $100  to 
$500,  6  from  $500  to  $1,000,  10  from  $1,000  to  $3,000,  and  4 
over  $3,000,  the  amount  rising  in  one  case  to  $6,352.  The 
total  amount  of  $45,170,  giving  an  average  of  $836,  while  low 
enough,  does  not  convey  the  real  amount  of  destitution  left 
unprotected. 

On  the  other  hand,  the  amounts  received  occasionally  are 
quite  heavy,  unjustifiably  so  if  we  remember  that  the  physical 
pain  cannot  be  compensated  but  only  the  economic  loss. 
Thus  the  Minnesota  Report  quotes  the  records  of  13  re- 
coveries in  case  of  partial  permanent  disability.  In  these  13 
cases  the  total  amount  received  was  $71,977,  or  $5,536  per  case, 
and  the  awards  varied  from  $1,000  for  two  fingers  off  to 
$10,500  for  the  loss  of  an  arm,  and  $16,000  for  the  loss  of  a 
leg.7  Perhaps  the  reader  might  argue  that  he  would  not  think 
even  $16,000  an  adequate  exchange  value  of  a  leg,  but  the  fact 
of  the  matter  is  that  $16,000  is  a  much  larger  sum  than  the 
capitalized  value  of  the  loss  of  earning  power  because  of  loss 
of  a  leg. 

3.  The  compensation  is  obtained  through  the  courts  only    * 
after  a  long  lapse  of  time,  and  not  when  it  is  acutely  needed, 
so  that  it  fails  to  meet  the  destitution  caused  by  the  injury 
speedily. 

This  is  so  well  known  that  it  scarcely  needs  much  statistical 
proof.  The  mills  of  justice  grind  slowly,  though  they  do  not 
even,  as  was  shown  above,  grind  exceedingly  well. 

•Report  of  the  Employers'  Liability  and  Workmen's  Compensation 
Commission  of  the  State  of  Michigan,  Lansing,  1911,  p.  17. 

7  Twelfth  Biennial  Report  of  the  Bureau  of  Labor,  Industries,  and 
Commerce  of  the  State  of  Minnesota,  1909-1910,  pp.  159,  167. 


96  SOCIAL  INSURANCE 

The  Insurance  Year  Book  for  1911  conveys  the  startling 
information  that  on  December  31,  1910,  fourteen  liability 
insurance  companies  reported  13,043  suits  outstanding.  And 
yet  these  fourteen  companies  do  not  by  any  means  cover  the 
largest  share  of  American  industry.  These  13,043  suits  were 
distributed  according  to  the  year  when  the  accident  occurred 
as  follows : 

Prior  to  1901    42  suits  1906   743  suits 

1901    23     "  1907    1356    " 

1902    52    "  1908    2450    " 

1903    106    "  1909    4783     " 

1904    167    "  1910    2950    " 

1905    371     " 

13043 

Thus  there  are  thousands  of  claimants  who  must  wait  from 
one  to  five  years,  and  many  hundreds  waiting  from  five  to  ten 
years  for  the  final  decision  on  their  claims.  There  are  many 
courts  of  different  importance,  and  the  defendant  can  and 
does  resist  the  claim  unless  he  can  obtain  a  satisfactory  settle- 
ment. He  is  the  more  justified  in  doing  so,  that  in  the  upper 
courts  where  the  cases  are  decided  on  appeal  on  points  of  law 
rather  than  on  evidence,  the  verdict  is  much  more  favorable 
to  the  employer.  The  Wisconsin  Bureau  of  Labor8  reports 
that  in  the  lower  courts  64.5$  of  all  cases  were  decided  in  favor 
of  the  workingman,  and  in  the  upper  court  only  38.4$.  The 
dragging  of  the  cases  through  the  various  jurisdictions  takes 
time — a  long  time  measured  in  years.  And  often  the  hope  of 
exhausting  the  plaintiff,  so  as  to  force  a  settlement  for  a  more 
modest  sum,  is  the  only  reason  for  dragging  the  suit.  As  a 
result,  a  vast  majority  of  claims  are  settled  privately  out  of 
court,  and  usually  for  a  smaller  amount.  Thus,  the  investiga- 
tions of  the  U.  S.  Employers'  Liability  and  Workmen's  Liabil- 
ity Commission  show  that  of  5,948  fatal  cases  paid  for, 
5,672  were  closed  by  settlements,  and  only  276,  or  4.5$,  by 
court  judgments.  For  the  former  the  average  payment  was 
$1,157,  and  for  the  latter  $2,536.  The  price  paid  for  avoid- 
ing this  harmful  delay  is,  therefore,  a  very  heavy  one. 

4.  A  large  share  of  the  amounts  received  is  socially  wasted 
in  that  it  goes  to  pay  the  attorney's  fees,  and  so  the  actual 
amount  which  reaches  the  injured  or  his  dependents  is  usually 
8  Thirteenth  Annual  Report,  p.  85. 


INDICTMENT  OF  EMPLOYER'S  LIABILITY      97 

smaller  th.m  the  amounts  stated  above  appear  to  be.  The 
New  York  Commission  compiled  a  few  interesting  data  illus- 
trating this  situation. 

In  14  out  of  51  cases  investigated,  the  fee  was  less  than  25$ 
of  the  receivable  amount,  in  16  from  25$  to  34.9$,  in  7  from 
35$  to  49.9$,  and  in  14  50$  or  over.  Altogether  in  46  cases 
$72,817  was  paid.  Of  this  amount  $19,194,  or  26.3$,  was  ex- 
pended on  lawyers'  fees.  In  settlement  without  suit  the  pro- 
portion was  17$,  in  settlement  after  suit  30$,  and  in  cases 
of  damages  recovered  as  much  as  37$.  That  alone  tends  to 
influence  the  beneficiary  to  receive  a  smaller  amount  in  private  ^ 
settlement.  >^ 

5.  Finally,  whether  the  injured  employee  recoverany  dam-       * 
age  or  not,  as  soon  as  he  begins  to  press  his  claim  to  the  point 
of  suit,  he  loses  his  position,  even  if  his  disability  is  not  per- 
manent, or  if  permanent  not  a  total  one.    According  to  the  \/ 
Michigan  report  so  often  quoted,  in  the  case  of  one  court 
reporting  twelve  cases,  every  one  of  the  claimants  lost  his 
position  on  account  of  his  claim.    The  danger  of  this  is  so  well    y/ 
understood  that  the  fear  of  this  alone  undoubtedly  keeps  many 
from  pressing  their  claims. 

Thus  the  case  against  the  system  of  employer's  liability 
from  the  workman's  point  of  view  is  quite  strong  and  simple. 
As  a  result  of  this  method  of  recovery  in  case  of  an  injury 

(1)  a  majority  of  cases  remain  altogether  uncompensated ; 

(2)  the  amount  of  compensation  when  recovered  is  usually 
small  when  it  is  not  erratically  large ;  (3)  it  is  slow  in  coming ; 
(4)  a  large  part  of  it  is  lost  in  attorney's  fees,  and  (5)  the 
workingman  is  often  kept  from  asserting  his  rights  because  of 
fear  of  losing  his  position. 

Perhaps  somewhat  more  paradoxical  is  the  fact  that  the 
existing  system  of  employer's  liability  has  been  found  unsatis- 
factory from  the  point  of  view  of  the  employer  as  well.  Most 
of  the  objections  which  have  been  enumerated  above  are  such 
as  to  sacrifice  the  interests  of  the  wage-workers  in  the  interests 
of  the  employing  class.  Why?  then,  is__the  condition  found 
unsatisfactory  from  the  employer's  point,  pf  vi^w? 

1.  The  system  of  employer's  liability,  while  intended  to 
limit  the  responsibility  of  capital  for  damage  done  to  the  hu- 
man  machine,  does  not  appear  as  cheap  as  it  seems.  The 
danger  of  lawsuits  and  adverse  verdicts  is  a  serious  one.  The 


98  SOCIAL  INSURANCE 

amount  is  uncertain.  For  this  reason  the  expeme  incurred 
is  larger  than  the  number  of  compensated  accidents  would  in- 
dicate. And  if  a  claim  for  damages  goes  to  suit,  then  even  a 
successful  resistance  costs,  and  costs  heavily.  Naturally,  all 
these  expenses,  and  they  are  heavy,  are  pure  waste  as  far  as  the 
injured  employee  is  concerned.  The  humane  employer  read- 
ily agrees  that  it  would  be  better  if  this  amount  would  be  used 
for  actual  relief. 

2.  Another  objection  to  the  liability  system  from  the  point 
/  of  view  of  the  employer,  is  the  friction  and  irritation  in  rela- 
tion between  himself  and  employee  which  the  prosecution  of 
claims,  the  appearance  of  his  employees  as  witnesses,  either 
against  the  employer,  which  is  unlikely,  or  against  their  old 
associate,  which  is  demoralizing,  must  produce.  /This  con- 
stant irritation  and  friction  interferes  with  the  efficiency  of  an 
industrial  organization^.  For  this  reason  employers  are  forced 
to  contribute  voluntarily  (paradoxical  as  this  may  sound) 
large  amounts  in  payment  of  medical  and  surgical  fees,  hos- 
pital charges,  funeral  expenses,  and  payment  of  wages  for 
time  lost  and  contributions  to  employees'  benefit  associa- 
tions. 

But  besides  the  injured  workman  and  the  employer,  there  are 
also  the  general  interests  of  the  social  organism,  which  are 
seriously  affected  by  the  existing  liability  system. 
/  1.  The  cost  to  society.  A  large  amount  of  economic  depend- 
v  ency  and  destitution  is  caused  by  industrial  accidents  uncom- 
pensated  or  insufficiently  compensated.  Modern  society  has 
reached  a  certain  level  of  civilization  at  which  it  is  manifestly 
impossible  to  leave  cripples  or  innocent  widows  and  orphans 
without  any  means  of  support.  Charitable  relief,  either  pri- 
vate or  public,  must  step  in  to  render  some  assistance.  That 
this  relief  is  usually  very  meager  and  barely  sufficient  to  keep 
body  and  soul  together  goes  without  saying.  But  even  then, 
it  creates  a  claim  upon  charitable  relief  which  is  utterly 
unjustifiable,  as  large  industry  is  fully  able  to  bear  the  cost 
of  its  wreckage.  This,  a  burden  which  properly  belongs  to 
industry,  is  transferred  to  society  at  large. 

2.  Still  more  important  than  the  economic  cost  is  the  moral 
effect  of  this  enforced  pauperization  of  thousands  of  working- 
men's  families,  which  from  a  social  point  of  view  is  a  very 
serious  problem  indeed. 


INDICTMENT  OF  EMPLOYER'S  LIABILITY      99 

3.  The  destitution  of  the  cripple  or  his  relatives  has  a  very 
injurious   effect   upon  the   general   standard   of  life   of  the 
working  class.    Much  more  frequently  than  organized  charity 

are  relatives  of  the  same  economic  class  called  upon  to  render    ^ 
financial  aid,  thus  either  decreasing  the  meager  reserve  fund, 
or  reducing  the  standard  of  life  of  another  workingman's 
family. 

4.  Perhaps  of  less  importance,  though  quite  conspicuous 
and,  therefore,  often  mentioned  is  the  very  large  cost  to  so- 
ciety of  the  litigation  arising  out  of  employer 's  liability,  which 
represents  perhaps  the  largest  part  of  the  activity  of  our  higher 
courts.    To  the  waste  of  attorney 's  fees  on  both  sides  must  be 
added  the  cost  of  trial  to  society.    How  large  this  cost  must  be  x 
may  be  surmised  from  the  fact,  that  within  the  period  of  ten 
years  fourteen  liability  insurance  companies  were  called  upon 
to  meet  84,908  suits  on  behalf  of  the  employers  insured  with 
them.9 

5.  And  perhaps  greater  than  the  financial  cost  is  the  cost 
in  demoralization  to  which  these  liability  suits  invariably  lead. 
For  the  amount  of  misrepresentation  and  perjury  on  the  part 
of  claimant,  defendant,  witnesses,  and  experts,  which  develops 
in  these  suits,  though  not  easily  measured,  must  be  appalling. 

8  Insurance  Year  Book,  1911,  p.  A  101. 


CHAPTER  VII 
CASE  FOR  COMPENSATION 

ONE  is  inclined  to  become  very  impatient  with  the  slow 
progress  of  social  changes,  when  one  remembers  that  the  whole 
discussion  of  the  drawbacks  of  the  liability  system  which  goes 
on  in  the  United  States  at  the  present  time,  is  but  a  repetition, 
with  slight  variations  of  detail  only,  of  similar  discussions  in 
Continental  Europe,  out  of  which  grew  the  modern  concep- 
tion of  accident  compensation  with  entire  disregard  of  the 
legal  concept  of  negligence  or  fault. 

Of  course  it  took  time  even  in  Europe  before  the  justice 
of  such  a  solution  was  admitted.  Not  only  was  the  legal  prin- 
ciple of  fault  defended  as  a  principle  of  abstract  justice  but 
also  from  a  broader  point  of  view  of  jsocial  utility.  It  was 
argued  in  defense  of  the  doctrine  of  assumption  of  the  entire 
risk  by  the  employee,  that  the  comparative  risk  of  employ- 
ment was  taken  care  of  by  the  wages ;  that  the  wages  for  the 
more  dangerous  work  were  higher  because  of  this  risk,  thus 
providing  a  fund  out  of  which  provision  could  be  made  in 
case  of  injury  either  by  saving  or  by  private  insurance.) 

It  is  a  plausible  argument,  which,  like  many  plausible  argu- 
ments in  the  field  of  practical  economics,  meets  the  serious 
difficulty  of  lacking  support  in  facts.  It  has  never  been  statis- 
tically established  that  there  is  any  correspondence  between 
the  comparative  risk  of  an  occupation  and  its  remuneration, 
such  as  there  undoubtedly  is  between  remuneration  and  skill. 
And  if  in  a  few  dangerous  occupations  fairly  high  wages  are 
given,  it  is  usually  found  to  be  dependent  rather  upon  the 
skill  than  the  risk  incurred  (such  as  in  structural  iron- 
working).  On  the  contrary,  there  are  a  very  large  number  of 
occupations  of  extremely  high  risk  and  extremely  low  pay — 
such  as  coal-mining,  unskilled  labor  in  the  iron  and  steel  in- 
dustry, loading  and  unloading. 

The  few  efforts  to  investigate  this  problem  which  have  been 
made  seem  to  give  substantial  evidence  in  support  of  this  con- 

100 


CASE  FOR  COMPENSATION  101 

tention.  For  224  workmen  fatally  injured  in  New  York 
during  1907-1908,  and  investigated  by  the  New  York  State 
Employers'  Liability  Commission,  the  average  wage  was 
$15.64  per  week,  and  in  60$  the  wages  were  less  than  $11  and 
in  25$  less  than  $12. 1  Among  1,399  injured  persons  studied 
by  the  New  York  Labor  Department,  928,  or  62$,  earned  less 
than  $15,  and  643,  or  nearly  50$,  less  than  $12.2  Moreover, 
the  theory,  even  if  true,  would  offer  a  very  poor  remedy  for  the 
situation  that  exists.  Perhaps  no  one  could  better  demonstrate 
the  total  absurdity  of  this  argument  than  did  Mr.  M.  M. 
Dawson  before  the  first  Conference  on  Workmen's  Compen- 
sation Acts  held  in  Atlantic  City  in  the  summer  of  1909. 3 
Said  Mr.  Dawson: 

"  Let  us  assume  for  a  moment  that  it  is  the  case.  Now,  if  all  the 
employees  of  the  United  States  Steel  Company,  we  will  say,  are 
receiving  in  their  wages  in  the  aggregate  a  financial  equivalent  of  all 
the  accidents  causing  the  death  of  men  in  that  employment  and  injury 
of  others,  it  means  that,  in  the  aggregate  wages  paid  by  the  company, 
compensation  at  least  equal  to  the  amount  that  would  be  paid  under 
a  proper  workingmen's  compensation  is  already  being  paid  by  the 
employer.  And  it  means  something  else.  If  this  is  true,  I  think  you 
will  all  agree  with  me,  that  the  following  would  be  a  very  proper  thing 
to  do :  First,  determine  what  the  wages  ought  to  be  without  that  extra 
compensation ;  then  wait  until  the  end  of  the  year,  calculate  what  the 
cost  of  all  industrial  accidents  in  that  enterprise  has  been  during 
the  year,  and  send  each  man  his  proportionate  amount.  I  wonder 
how  many  of  you  would  be  willing  to  see  that  done?  I  wonder  how 
many  employers  throughout  the  United  States  would  be  willing  to  see 
the  money  that  should  go  to  widows  and  orphans  on  the  deaths  of 
husbands  and  fathers,  divided  up  in  that  manner  among  those  who 
are  still  living.  If  that  condition  should  exist,  it  would  be  the 
most  monstrous  waste  in  the  whole  proposition." 

The  only  proper  thing  left  to  the  workman  would  be  to  use 
that  extra  amount  in  purchasing  accident  insurance  in  a 
private  insurance  institution,  paying  any  amount  that  institu- 
tion would  care  to  charge,  and  thus  putting  the  well-being  of 
the  workman's  family,  who  are  sufferers  with  the  workman 
himself  in  case  of  injury,  upon  the  mercy  of  the  workman's 
good  judgment. 

That,  too,  is  no  more  an  idle  theory.     It  has  been  tried, 

1  Report,  p.  91. 

2  Report,  p.  213. 

8  Report  of  Atlantic  City  Conference,  p.  20. 


102  SOCIAL  INSURANCE 

and  repeatedly,  in  Europe  by  various  means  stimulated  to  en- 
courage workmen  to  obtain  private  accident  insurance.  Per- 
\/  haps  the  best  known  experiment  is  the  one  made  in  France, 
where,  in  1866,  a  National  Accident  Insurance  Fund  for  in- 
dustrial workmen  was  established.  For  over  thirty  years, 
until  a  compensation  law  was  adopted,  the  results  of  the 
operation  of  this  institution  were  ridiculously  insignificant. 

Under  the  influence  of  the  energetic  solicitation  of  private 
insurance  companies,  and  thanks  to  the  development  of  frater- 
nal and  similar  organizations,  private  voluntary  insurance 
among  workmen  of  the  United  States  is  more  popular  perhaps, 
than  it  ever  was  in  any  country.  But  even  then  only  a  small 
proportion  carry  any  insurance,  the  amount  provided  for  is 
very  small,  the  cost  is  very  high,  and  the  more  dangerous  is 
his  occupation,  the  harder  it  becomes  for  the  workman  to 
obtain  any  accident  insurance  at  all. 

The  other  argument  for  preserving  the  basis  of  fault  which 
''  was  still  more  persistent,  based  itself  upon  those  accidents 
which  are  due  to  the  workman's  fault.  It  was  argued  that  to 
make  the  employer  responsible  for  such  accidents  was  not 
only  unjust,  but  even  socially  harmful,  because  it  would  only 
increase  the  carelessness  of  the  employee  and  increase  the 
number  of  accidents. 

In  Europe  the  battle  with  these  legal  and  social  defenses 
of  principle  of  fault  as  the  proper  basis  for  employer's  lia- 
bility was  fought  many  years  ago.  When  following  the  Ger- 
man movement,  which  started  about  1879,  the  legislative  bodies 
of  other  countries  began  to  study  the  question  of  industrial 
accidents,  at  first  the  tendency  was  to  preserve  the  causation 
of  the  accident  as  the  basis  for  remedial  legislation. 

First  there  were  the  accidents  due  to  the  employer's  fault. 
It  was  felt  that  even  in  these  cases  it  was  not  always  easy 
for  the  workman  to  establish  his  claim,  because  it  was  diffi- 
cult to  bring  proofs  satisfactory  from  a  strictly  legal  point 
of  view,  and  so  the  earliest  proposals  in  Germany,  Italy,  and 
France  were  for  a  reform  in  that  particular — a  change  in 
the  burden  of  proof,  as  the  legal  phrase  goes,  so  that  instead 
of  the  injured  workman  being  required  to  show  the  employ- 
er 's  fault,  it  would  be  necessary  for  the  employer  to  prove  that 
the  accident  had  occurred  without  any  negligence  on  his 
part. 


v' 


CASE  FOR  COMPENSATION  103 

The  next  step  was  the  announcement  of  the  principle  of 
"  trade  risk/'  "  risque  professionelle  "  as  the  French  have 
termed  it.  The  clearest  expression  of  this  is  found  in  the 
Swiss  Employer's  Liability  Law  of  1881,  which  established  the 
liability  of  the  employer  not  only  for  accidents  caused  by  his 
own  negligence  or  that  of  his  agent  or  representatives,  but 
also  made  the  employer  liable  "  when  an  employee  or  work- 
man is  killed  or  injured  on  the  premises  of  his  factory  and 
through  the  operations  of  the  same  without  such  negligence  on 
his  part,  unless  he  can  prove  that  the  accident  was  caused  ^ 
by  a  superior  force,  or  by  the  crime  or  misdemeanor  of  other 
persons,  or  that  it  occurred  through  the  fault  of  the  persons 
killed  or  injured." 

This  last  provision  covers  the  field  of  "  trade  risk." 

The  recognition  of  this  conception  of  trade  risk,  as  distinct 
from  any  fault,  in  the  legislation  of  some  countries  and  in  the 
literature  of  many  others,  was  a  very  important  step  in  the 
right  direction.  The  conception  included  not  only  the  recog- 
nition that  a  large  number  of  accidents  may  happen  without 
any  one's  fault,  simply  as  a  consequence  of  certain  industrial 
processes,  but  that  because  of  this  the  industry  and  not  the 
employee  was  responsible  for  this,  and  was  to  bear  the  financial 
burden  of  it. 

The  employer  as  the  representative  of  the  industry,  as  the 
one  who  assumed  all  the  economic  risks  of  the  undertaking,  and 
who  also  claimed  all  the  residual  profits,  was,  therefore,  to  be 
responsible  not  only  for  accidents  due  to  his  fault,  but  also 
for  the  other  large  class  due  to  the  trade  risk. 

When  social  and  legal  thought  got  so  far,  the  way  was 
paved  for  further  progress  of  the  compensation  idea.  For  the 
shortcomings  even  of  such  a  system  did  not  fail  to  show  them- 
selves. The  greatest  of  them  was  the  stimulus  to  constant  ^ 
prolonged  litigation  in  each  individual  case,  necessary  to 
determine  the  question  of  fault,  which  was  still  left  open. 

But  the  backbone  of  the  principle  of  fault  was  broken,  once 
it  was  admitted  that  the  employer  should  be  held  responsible 
for  other  accidents  than  those  for  whose  causation  he  was  in 
any  way  responsible.  Such  an  extension  of  the  employer's 
liability  could  evidently  be  defended  only  on  an  entirely  differ- 
ent assumption — an  assumption  that  industrial  accidents 
presented  not  so  much  a  legal  as  an  economic  and  social  prob- 


104  SOCIAL  INSURANCE 

lem,  that  the  wear  and  tear  of  the  human  machine,  like  the 
wear  and  tear  of  the  inanimate  machinery,  should,  therefore, 
be  considered  a  necessary  part  of  the  cost  of  production,  to  be 
provided  for  out  o/  the  price,  before  profits  may  be  computed. 

That  is  the  underlying  principle  of  the  theory  of  accident 
compensation.  ^To  be  consistent,  this  theory  must  entirely  dis- 
regard the  question  of  causation,  leaving  that  to  the  field  of 
accident  prevention  through  factory  legislation  and  inspec- 
tion. In  addition  to  all  the  other  arguments,  this  theory  was 
obstinately  opposed  by  many  employers  on  the  ground  that  it 
created  an  excessive  burden  upon  industry.  But  the  argu- 
ment is  easily  met  by  the  consideration  that  the  cost  of 
support  of  persons  disabled  must  fall  upon  somebody,  for 
society  cannot  quietly  stand  by  and  see  them  go  into  destitu- 
tion, often  without  any  fault  of  their  own.  Now,  if  the  burden 
of  industrial  accidents  must  be  borne,  by  whom  shall  it  be 
borne?  By  the  wage-workers  entirely,  the  weakest  econom- 
ically, who  in  addition  must  bear  the  physical  pain,  mutilation, 
and  death — or  by  the  charitably  inclined,  who  may  give  out  of 
the  goodness  of  their  heart  but  may  not  give  enough  ?  Or  by 
various  branches  of  industry  in  proportion  to  the  injury  done 
to  human  lives  and  health? 

The  general  acceptance  of  compensation  laws  was  the  answer 
that  European  thought  gave  to  the  question.  This  acceptance 
presupposed  that  to  the  accidents  due  to  the  employer 's  fault 
and  to  trade  risk,  were  added  finally  also  those  which  are 
due  to  the  injured  employee's  own  fault. 

This  general  development  of  the  compensation  idea  out  of 
the  liability  idea  was  independently  gone  through  by  all 
countries  having  compensation  acts.  In  all  of  them,  many 
years  of  discussion,  agitation,  and  parliamentary  struggle 
preceded  the  enactment  of  the  law,  and  in  this  development 
the  following  stages  have  usually  been  observed: 
fl.  Suggestions  for  change  in  the  burden  of  proof. 

2.  The  growth  of  the  concept  of  trade  risk  and  efforts  to 
place  liability  for  it  upon  the  employer. 

3.  Efforts  to  divide  industrial  accidents  into  three  groups, 
those  due  to  the  employer,  trade  risk,  and  employee,  strength- 
ening the  liability  legislation  in  favor  of  the  first,  creating 
a  compensation  scheme  for  the  second,  and  leaving  the  last 
unprovided  for. 


CASE  FOR  COMPENSATION  105 

4.  The  gradual  growth  of  the  compensation  idea,  with  excep- 
tions in  case  of  fault  of  employee. 

5.  Further  extension  of  the  compensation  idea  so  as  to  ex- 
cept only  accidents  due  to  gross  negligence  or  wilful  miscon- 
duct, and, 

6.  The  final  extension  of  the  compensation  scheme  over  all 
industrial  accidents  without  any  exceptions^ 

It  must  be  understood,  however,  that  this  development  of 
the  compensation  method  was  not  entirely  at  the  cost  of  the 
employer,  and  that  indirectly  the  workmen  had  to  sacrifice 
a  good  deal.  Together  with  the  principle  of  fault  went  also 
the  principle  of  full  damages,  to  be  determined  in  open  court 
by  a  sympathetic  jury.  Compensation  was  not  a  free  gift  to 
the  workman,  for  it  was  purchased  at  a  cost  of  a  limited  scale 
of  compensation.  If,  on  one  hand,  the  industry  was  to  assume 
responsibility  for  the  cost  of  all  accidents,  on  the  other  hand 
the  injured  workman,  in  return  for  this  advantage  of  not  going 
to  expensive  lawsuits,  was  to  be  satisfied  with  a  limited  amount 
adjusted  to  his  needs,  but  not  representing  the  entire  economic 
loss  sustained.  Even  under  the  best  compensation  system 
existing,  the  injured  employee  shares  a  part  of  the  economic 
loss  as  well  as  the  entire  cost  in  physical  pain. 

Is  the  compensation  system  worth  while?  It  may  be  ad- 
mitted that  it  represents  a  higher  cost  to  the  industry  even 
under  a  limitation  of  compensation.  It  may  be  admitted,  on 
the  other  hand,  that  even  the  best  compensation  system  does 
not  fully  compensate  the  injured  workman  for  the  loss  sus- 
tained. But  under  these  two  conditions,  is  the  compensation 
system  worth  while  ?  What  are  the  arguments  to  be  made  in 
ite*  favor  ?  ^ 

I  The  defense  of  the  compensation  systemjmust  be  made  on 
tire  same  lines  on  which  the  indictment  of  uie  liability  system 
was  drawn.  But  it  will  do  no  harm  to  summarize  the  argu- 
ments briefly  again. 

II.  The  first  and  foremost  argument  is  evidently  the  relief 
01  human  suffering  and  distress,  which  the  liability  system  has 
failed  to  accomplish.  The  compensation  system  relieves  all 
injuries,  and  relieves  them  swiftly,  automatically,  without 
unnecessary  delay  and  litigation. 

2.  It  puts  the  burden  of  cost  at  least  partly  where  it  be- 
longs, upon  the  industry,  and  not  upon  the  wage-worker  him- 


106  SOCIAL  INSURANCE 

self,  his  dependents,  relatives,  or  private  or  public  charity.  It 
saves  the  thousands  of  injured  the  degradation  and  demoraliza- 
.  tion  of  becoming  paupers  without  any  moral  fault  of  their  own, 
and  prevents  them  from  depressing  the  general  standard  of 
life  of  the  wage-working  class. 

v/    3.  It  saves  the  enormous  waste  of  litigation,  not  only  to  the 
injured  employee,  but  also  to  the  employer. 

4.  It  prevents  an  enormous  amount  of  unnecessary  friction 
between  emplo^r  and  employee,  which  otherwise  results  in 
serious  conflicts,/ 

The  first  three  of  the  arguments  quoted  above  have  been  dis- 
cussed quite  fully  in  earlier  pages.  But  the  last  one  may  raise 
many  criticisms,  and  from  the  most  opposite  quarters. 

It  is  well  known  that  in  a  very  much  broader  interpretation 
this  was  the  argument  which  moved  Bismarck  to  agitate  in 
favor  of  accident  compensation  as  well  as  other  forms  of  social 
insurance.  For  the  same  reason,  the  socialists  of  Germany, 
representing  the  rising  labor  movement  of  Germany,  for  many 
years  were  not  only  indifferent,  but  actually  antagonistic  to 
the  whole  structure  of  social  insurance.  But  as  the  particular 
object  of  Bismarck  failed,  and  as  the  socialist  and  labor  move- 
ments have  continued  to  grow  simultaneously  with  the  growth 
of  the  insurance  institutions,  the  socialists  in  Germany  and 
elsewhere  have  not  only  ceased  to  be  antagonistic  to  social 
insurance,  but  have  included  its  extension  in  their  program. 
On  the  other  hand,  this  very  fact  is  often  mentioned  by  an- 
tagonists of  accident  compensation  in  support  of  their  con- 
tention that  compensation  is  a  useless  waste  of  money,  since  it 
is  powerless  to  bring  about  social  peace. 

The  argument  is  evidently  based  upon  a  serious  misunder- 
standing. A  calm  observer  of  our  economic  life  is  bound  to 
conclude  that  serious  conflicts  between  the  social  groups  known 
as  capital  and  labor  -have  become  an  important  feature  of 
our  economic  life,  and  that  often  the  relations  between  the 
two  are  successfully  regulated  by  such  conflicts. 

But  it  is  just  as  evident,  that  such  disturbances  of  the  usual 
course  of  events  must  be  serious  affairs;  they  are  serious 
weapons  to  be  used  when  other  more  peaceful  methods  fail; 
but  a  constant  petty  bickering  and  quarreling  and  the  breed- 
ing of  personal  ill-will,  on  account  of  conflicts  which  can  be 
quickly  and  justly  settled,  is  not  desirable  from  any  sensible 


CASE  FOR  COMPENSATION  107 

point  of  view.  Yet  this  is  just  the  situation  which  must  grow 
out  of  every  liability  suit.  A  compensation  system  with  a 
definite  compensation  scale  does  away  with  most  of  that  un- 
necessary friction,  which  may  be  entirely  eliminated  by  a 
proper  system  of  insurance. 

But  all  these  beneficent  results  are  only  accomplished  under 
a  satisfactory  compensation  system.  As  there  are  vast  differ- 
ences in  the  status  of  employer's  liability  in  various  countries 
and  states,  so  there  are  differences  equally  important  in  the 
provisions  of  compensation  legislation.  In  so  far  as  a  good 
compensation  law  is  vastly  superior  to  a  bad  liability  system, 
the  difference  may  be  materially  reduced,  not  only  by 
improvements  in  the  liability  legislation,  but  also  by  such 
provisions  as  will  limit  the  justice  and  efficiency  of  the 
compensation  system.  A  thorough  study  of  the  details  of  a 
good  compensation  law  will,  therefore,  next  claim  our  attention. 


CHAPTER  VIII 

THE  ELEMENTS  OF  A  NORMAL  COMPENSATION 

LAW 

IT  is  convenient  to  speak  of  compensation  in  the  abstract,  in 
order  to  contrast  it  with  the  system  of  liability.  As  a  matter 
of  fact,  there  are  as  many  different  systems  of  compensation 
as  countries  which  have  passed  compensation  acts,  and  the  dif- 
ferences are  more  or  less  essential.  It  is  necessary,  therefore, 
to  make  a  comparative  and  critical  analysis  of  at  least  the 
most  important  European  compensation  acts,  and  especially 
of  their  compensation  scales,  so  as  to  come  to  some  conclusion 
as  to  what  the  normal  standard  of  compensation  for  accidents 
should  be. 

It  has  already  been  pointed  out  that  the  elimination  of  the 
question  of  negligence  or  fault  was  the  central  thought  of  an 
effective  compensation  system.  But  old  concepts  die  hard ;  and 
the  concept  of  fault  has  not  yet  altogether  been  eliminated 
from  some  of  the  European  acts.  That  injuries  inflicted  by  the 
injured  employees  upon  themselves  intentionally  for  the  pur- 
pose of  getting  the  compensation  should  be  put  beyond  the 
scope  of  the  compensation  system  is  reasonable  enough.  But 
such  cases  must  be  very  rare  and  the  exception  has  no  economic 
significance.  This  provision  is  found  in  the  acts  of  Austria, 
Belgium,  Denmark,  Finland,  France,  Germany,  Greece,  Hun- 
gary, Luxemburg,  Netherlands,  Norway,  Quebec,  Russia,  and 
Sweden — fourteen  out  of  some  thirty  acts,  outside  of  the 
United  States.  By  inference  the  same  limitation  obtains  in 
most  of  the  other  countries,  because  most  of  the  acts  deal  with 
injuries  arising  out  of  accidents,  and  an  injury  intentionally 
self-inflicted  could  hardly  come  under  the  broadest  definition  of 
an  accident.  But  even  here  there  is  a  rare  possibility  of  injus- 
tice being  done  to  the  family  (if  not  to  the  injured  employee 
himself),  whose  destitution  would  no  less  be  a  problem  because 
the  fatal  injury  was  self-inflicted.  It  is  worthy  of  notice  that 
in  at  least  one  country,  Hungary,  the  act  specially  provides 

108 


NORMAL  COMPENSATION  LAW  109 

for  this  possibility.  Though  the  person  injured  by  an  ' '  acci- 
dent intentionally  caused  forfeits  all  claims  to  compensation  ' ' 
but  "  should  the  injured  person  die,  his  dependents  are  en- 
titled to  the  legal  benefits  and  pensions  even  in  such  a  case.'7 
(Art.  75.)  That  is  a  splendid  illustration  of  the  substitution 
of  the  new  principle  of  economic  need  for  that  of  formal  legal 
tort. 

Very  much  less  defensible  is  the  formula  of  "  serious  and 
wilful  misconduct  "  which  is  found  in  many  acts,  especially 
that  of  Great  Britain  and  those  of  the  British  colonies,  follow- 
ing the  example  of  the  mother  country.  That  is  an  elastic 
formula  whose  exact  meaning  would  depend  upon  judicial  in- 
terpretation— just  the  thing  the  compensation  system  en- 
deavors to  eliminate.  Serious  and  wilful  misconduct  may  be 
a  statutory  offense,  to  be  penalized  in  the  usual  way  by  fines 
or  short-term  imprisonments.  Infringement  of  factory  rules 
may  even  be  punished  by  instantaneous  dismissal.  But  surely 
the  loss  of  right  to  compensation,  being  equivalent  in  many 
cases  to  destitution  and  misery,  is  too  cruel  a  punishment  for 
as  slight  a  crime  as  would  be  covered  by  the  word  "  miscon- 
duct," no  matter  how  serious  or  wilful.  The  British  act  ap- 
preciates the  injustice,  for  it  modifies  and  softens  the  exclu- 
sion by  the  following  words:  "  Unless  the  injury  results  in 
death  or  serious  and  permanent  disablement. ' '  Thus  modified, 
the  restriction  amounts  to  penalizing  misconduct  by  compara- 
tively slight  fines  and  is  perhaps  comparatively  unobjection- 
able. But  in  the  other  acts  mentioned  this  limitation  is  not 
to  be  found. 

But  more  important  is  the  limitation  of ' '  gross  negligence  ' ' 
which  is  found  in  a  number  of  acts  (in  Denmark,  Finland, 
Sweden,  Russia),  for  this  represents  a  distinct  compromise 
with  the  legal  notion  of  tort  or  fault  underlying  the  liability 
system,  a  compromise  that,  with  an  unsympathetic  attitude 
on  the  part  of  the  courts,  may  do  serious  harm.  The  list  of 
countries  above  given,  shows  that  it  has  not  survived  in  any 
industrially  important  country,  nor  in  any  country  where  a 
compulsory  insurance  system  exists.  And  the  reason  for  this 
is  self-evident.  Under  a  system  which  simply  places  the  duty 
of  compensation  upon  the  individual  employer,  it  may  still 
be  argued  that  it  is  unfair  to  force  him  to  compensate  a  loss 
due  to  another  man 's  gross  negligence,  but  under  a  compulsory 


110  SOCIAL  INSURANCE 

insurance  system  which  means  a  collective  responsibility  of  the 
industry  rather  than  of  the  individual  employer — the  amount 
of  possible  loss  due  to  '  *  gross  negligence  ' '  becomes  dissolved, 
as  it  were,  in  the  general  cost  of  all  industrial  accidents. 

Even  when  there  are  no  such  definite  exceptions,  the  ques- 
tion which  accidents  do  give  rise  to  the  right  for  compensa- 
tion, and  which  do  not,  presents  many  difficulties.  The 
definition  of  an  "  occupational  accident  "  unless  it  is  suffi- 
ciently broad,  may  and  does  lead  to  a  good  deal  of  litigation, 
to  that  extent  nullifying  the  main  purpose  of  a  compensation 
system.  The  narrowest  interpretation  is  that  an  industrial 
accident  is  one  arising  out  of  the  employment,  and  in  the  course 
of  it.  This  formula  is  found  in  many  acts,  especially  in  those 
countries  where  there  is  no  compulsory  insurance  system.  But 
in  regard  to  many  accidental  injuries  occurring  at  the  place 
of  employment  it  is  not  always  easy  to  determine  whether  they 
arise  out  of  the  employment. 

If  the  purpose  is  to  do  away  with  all  litigation,  there  is 
only  one  satisfactory  way  to  meet  the  difficulty,  and  that  is  to 
extend  the  compensation  system  over  all  accidental  injuries 
occurring  during  the  time  of  employment.  For  if  the  question 
of  the  responsibility  is  to  be  eliminated,  the  equally  difficult 
problem  of  the  exact  cause  must  be  eliminated  also.  And  as 
a  matter  of  fact,  this  broad  formula  may  be  found  in  the  acts 
of  Austria,  Finland,  France,  Germany,  Hungary,  Italy, 
Luxemburg,  Netherlands — in  most  of  which  there  is  compul- 
sory insurance  in  addition  to  compensation. 

In  very  few  countries  has  the  compensation  principle  en- 
tirely forced  the  older  system  of  employer's  liability  out  of 
existence.  In  this  respect  the  British  act — in  many  other 
ways  quite  deficient — sets  an  example  to  follow.  The  act 
applies  to  any  employment.  No  other  European  country  has 
as  yet  followed  this  comprehensive  formula.  The  limitations 
of  the  application  of  the  many  acts  present  a  bewildering 
kaleidoscope  of  variety,  and  perhaps  no  two  present  exactly 
the  same  limitations,  so  that  a  proper  classification  becomes  a 
very  complicated  matter.  Only  a  few  of  the  most  important 
limitations  must  here  be  studied. 

We  may  divide  the  entire  army  of  wage-workers  into  the 
following  eight  main  divisions:  manufactures,  building  and 
construction,  mining,  transportation,  agriculture,  commercial 


NORMAL  COMPENSATION  LAW  111 

undertakings,  office  work,  and  domestic  labor.  There  is  no 
effort  to  defend  this  classification  on  any  theoretical  lines,  but 
it  will  serve  our  purposes  at  present.  Of  these  eight  groups 
the  first  two  are  the  most  commonly  protected  by  European 
laws,  and  the  last  least  protected.  Of  all  the  acts  in  Europe 
and  in  the  British  Colonies,  the  United  Kingdom  remains  the 
only  one  to  cover  domestic  service  in  its  scheme.  The  prob- 
lem has  been  discussed  in  other  countries,  and  bills  have  been 
introduced  in  France  for  such  extension.  The  main  reason  for 
such  exception  may  probably  be  found  in  the  patriarchal 
relations  regulating  domestic  service,  under  which  a  slight 
injury  followed  by  disability  does  not  lead  to  loss  of  earn- 
ings, and  also  the  fear  of  imposing  the  danger  of  paying 
damages  upon  householders  of  small  means  who  do  not  derive 
any  profit  from  their  domestic  servants. 

The  last  consideration,  however,  only  underscores  the  short- 
comings of  a  pure  compensation  system  as  compared  with  a 
system  of  compulsory  insurance.  It  is  true  that  the  danger 
of  being  liable  for  a  large  amount  of  money  in  case  of  a  fatal 
or  grave  accident  to  a  domestic  servant  would  be  a  serious 
one  for  many  a  family  of  moderate  means,  though  to  a  limited 
extent  this  danger  exists  even  under  a  liability  system.  But 
the  cost  of  insuring  a  domestic  servant  against  the  accidents 
would  be  so  slight  that  no  family  able  to  hire  domestic  help 
would  feel  such  cost  as  any  burden  at  all. 

The  need  for  including  domestic  servants  in  the  compen- 
sation system  is  quite  real,  because  there  evidently  are  many 
elements  productive  of  accidents  in  housework — surely  more 
than  in  office  work.  The  handling  of  fire  and  of  boiling 
water,  working  on  step-ladders,  and  the  carrying  of  heavy 
weights  are  alone  sufficient  to  give  a  perceptible  accident  rate. 
If  in  reading  every  now  and  then  of  a  housewife  perishing 
from  flames,  we  do  not  classify  it  as  an  industrial  accident, 
it  is  only  because  we  do  not  think  of  work  in  the  kitchen, 
when  performed  by  the  housewife  for  the  benefit  of  her  own 
family,  as  industrial  work.  But  there  is  good  statistical  evi- 
dence in  favor  of  the  contention  that  the  home  is  by  far  a 
more  dangerous  place  than  store  or  office.  The  French  acci- 
dent reports  registered  1,893  accidents  among  personal  serv- 
ants during  1906-1908.  As  these  reports  do  not  pretend  to  be 
complete,  it  is  impossible  to  obtain  an  accident  rate.  But  it  is 


112  SOCIAL  INSURANCE 

significant  that  28$  of  these  accidents  were  due  to  falls  from 
ladders,  etc.,  21$  were  caused  by  driving  or  caring  for  animals, 
10$  by  falling  objects,  8$  by  handling  heavy  objects,  8$  by 
hand  tools,  and  7$  by  hot  or  corrosive  material. 

Less  serious  is  the  omission  of  office- workers  from  most  com- 
pensation acts.  Two  groups  of  office-workers  must  be  recog- 
nized :  Those  that  work  in  direct  proximity  to  industrial  plants 
and  represent  part  of  the  industrial  establishments,  and  the 
vastly  greater  army  of  office  employees  of  banks,  insurance 
companies,  and  similar  enterprises.  The  former  are  often  sub- 
ject, in  a  degree,  to  the  ordinary  industrial  hazard  and  many 
laws  include  them,  though  they  are  excepted  in  most  Con- 
tinental acts  (Austria,  Denmark,  Italy,  Luxemburg,  Nether- 
lands, Russia,  Spain,  Sweden).  In  some  acts  the  distinction 
is  drawn  between  technical  employees  and  others;  again  in 
other  acts  a  salary  limit  is  established  and  only  those  whose 
remuneration  falls  below  these  limits  are  protected  by  the 
compensation  act.  There  is  really  very  little  to  be  said  in 
favor  of  thes  exceptions,  distinctions,  and  qualifications,  from 
the  point  of  view  of  either  theory  or  practice.  As  to  the  cost 
of  such  extension,  the  very  fact  that  accidents  are  rare  in 
such  occupations  makes  the  additional  cost  very  light.  The 
same  is  true  of  the  very  much  larger  army  of  general  office 
employees  who  are  protected  by  very  few  acts  as  yet.  These 
are,  as  far  as  we  are  able  to  ascertain,  Great  Britain  and  the 
Cape  of  Good  Hope.  Undoubtedly  it  is  only  the  lack  of 
hazard  that  explains  the  absence  of  any  effort  for  extension 
in  that  direction. 

Half-way  between  office  and  industrial  employees  are  those 
employed  in  commercial  establishments.  Most  of  them  are 
forced  to  do  a  certain  amount  of  physical  labor,  such  as  climb- 
ing high  ladders,  handling  tools  in  unpacking  and  packing 
cases,  etc.  As  a  matter  of  fact,  French  statistics  (the  French 
law  covering  commercial  establishments)  show  a  rather  high 
accident  rate  for  this  group  of  employees — sixty  per  thousand 
—which  is  more  than  the  rate  in  such  branches  of  industry  as 
hides  and  leather,  printing,  textiles,  and  several  others.  Ac- 
cidents due  to  machinery  are  naturally  rare,  but  for  eight 
years  altogether  145,133  accidents  were  reported,  of  which  23$ 
were  due  to  handling  heavy  objects,  22$  to  falls  from  ladders, 
etc.,  17$  to  driving  or  tending  animals,  13$  to  falling  objects. 


NORMAL  COMPENSATION  LAW  113 

In  addition  to  Great  Britain  only  Belgium  (when  employ- 
ing three  or  more  persons),  France  (by  a  special  act  of  1906), 
and  three  or  four  British  colonies  include  the  commercial 
employee.  In  several  other  countries  the  question  is  seriously 
agitated.  In  the  United  States  the  very  large  number  of  com- 
mercial employees,  their  comparatively  low  wage  level,  the 
high  development  of  mechanical  appliances  in  commercial 
establishments  making  for  a  higher  accident  rate,  make  such 
discrimination  especially  undesirable. 

But  the  most  important  class  of  wage-earners  discriminated 
against  in  many  countries  is  the  class  of  agricultural  laborers. 
The  problem  of  their  compensation  is  at  present  the  most 
important  of  all  problems  in  connection  with  the  entire  sub- 
ject of  accident  insurance.  Agricultural  wage-labor  is  more 
common  in  some  European  countries  than  it  is  in  the  United 
States,  but  even  in  the  latter  country  out  of  some  ten  million 
employed  in  agricultural  pursuits,  about  four  and  one-half  mil- 
lion are  classified  as  laborers,  and  only  about  one-half  of  these 
are  members  of  the  farmer's  family,  while  the  other  half 
are  agricultural  wage-earners.  Several  reasons  are  usually 
brought  forth  against  the  extension  of  the  compensation  laws 
to  agricultural  pursuits: 

First,  that  agriculture  is  not  a  hazardous  occupation.  This 
argument  was  thoroughly  discarded  by  the  wealth  of  statistics 
accumulated  in  Germany  where  agricultural  pursuits  were  cov- 
ered by  a  special  act.  Though  German  statistics  cover  only 
the  serious  accidents  resulting  in  disability  of  over  three 
months'  duration,  from  60,000  to  70,000  accidents  annually 
are  reported  for  the  agricultural  wage-workers,  of  which  nearly 
3,000  are  fatal.  Nor  do  these  figures  represent  anything  un- 
usual when  the  recent  development  of  agriculture  and  the  rapid 
increase  in  application  of  agricultural  machinery  and  utiliza- 
tion of  mechanical  power  in  agriculture  are  considered.  In 
addition  to  that  there  are  a  vast  variety  of  hazardous  processes 
in  ordinary  agricultural  labor,  such  as  the  use  of  cutting 
instruments,  draft  and  working  animals,  dynamite,  and  so 
forth. 

Second,  an  argument  very  popular  in  Europe  is  the  very  low 
rate  of  profits  from  the  agricultural  utilization  of  land,  which 
makes  the  imposition  of  additional  burden  on  the  farm  of  the 
cost  of  compensation  ruinous  to  the  land-owning  interest. 


114  SOCIAL  INSURANCE 

Third,  it  is  further  argued  that  the  majority  of  employers  of 
agricultural  labor  are  themselves  not  very  much  better  off 
than  the  laborers  whom  they  hire,  that  they  are  but  petty 
farmers  employing  one  or  two  hands  to  help  them,  and  that  it 
is  absolutely  impossible  for  one  of  these  employers  to  meet  the 
cost  of  one  serious  accident.  This  argument  is  entirely  met 
by  the  method  of  insurance. 

The  grain  of  truth  that  is  contained  in  many  of  these  argu- 
ments is  greatly  exaggerated.  The  fact  of  the  existence  of  a 
large  agricultural  proletariat  is  disregarded.  The  objections 
advanced  may  be  sufficient  for  certain  limitations  and  modi- 
fications of  the  law  as  applied  to  the  agricultural  laborer,  but 
surely  do  not  justify  his  complete  exclusion  from  the  benefits 
of  a  compensation  act. 

The  simple  truth  is  that  the  influence  of  the  large  class  of 
agricultural  land-owners  was  strong  enough  in  most  European 
countries  to  exclude  the  agricultural  laborers  altogether  or 
by  a  very  large  measure.  Agriculture  as  a  whole  is  covered 
as  yet  by  very  few  countries.  Germany  is  practically  the  only 
country,  outside  of  Great  Britain  and  some  of  her  colonies, 
which  included  the  entire  agricultural  labor  class  in  her  sys- 
tem of  accident  insurance. 

In  addition,  Belgium  has  extended  her  act  over  such  agri- 
cultural establishments  as  habitually  employ  three  or  more 
hands,  thus  limiting  the  law  to  a  smaller  part  of  the  land- 
owners. And  in  five  countries  (Austria,  France,  Italy,  South 
Australia,  and  Spain)  the  special  dangers  connected  with  the 
operation  of  agricultural  machinery  of  the  heavier  type  driven 
by  mechanical  power  have  been  recognized.  In  these  countries 
the  compensation  laws  apply  to  those  agricultural  establish- 
ments on  which  mechanical  power  is  used — in  some  of  them 
being  further  limited  to  such  employees  as  are  in  direct  danger 
of  being  injured  by  such  mechanically  driven  machinery. 
Evidently  this  distinction  is  one  that  is  still  based  upon  the 
old  conception  of  tort,  fault,  personal  negligence,  or  any  other 
form  of  responsibility,  rather  than  economic  need. 

Thus,  the  main  fields  to  which  compensation  laws  apply  are 
the  following:  Manufacture  and  mining,  building  and  con- 
struction, and  transportation,  both  on  land  and  water.  In  ad- 
dition there  are  many  minor  branches  of  industrial  activity 
which  cannot  well  be  classified  under  any  of  these  three  great 


NORMAL  COMPENSATION  LAW  115 

classes.  Nearly  all  the  laws  include  these  three.  There  are  a 
few  acts  which  are  made  to  apply  to  mining  and  metallur- 
gical industry  only  (Greece,  New  South  Wales),  and  these  are 
evidently  special  acts  only.  Of  the  more  important  countries, 
Russia  is  perhaps  the  only  one  which  excludes  both  transpor- 
tation and  the  building  industry.  For  the  first,  however,  a 
special  system  exists  which  is  nearly  as  satisfactory,  and  the 
exclusion  of  the  building  and  engineering  trades  is  one  of  the 
strikingly  indefensible  defects  of  the  Russian  law. 

But  when  the  statement  is  made  that  nearly  all  the  laws 
include  these  three  large  branches  of  economic  activity,  it  does 
not  follow  that  all  the  workmen  in  these  fields  are  included. 
Nothing  better  illustrates  the  obstinate  struggle  of  various 
employing  interests,  both  large  and  small,  against  the  imposi- 
tion of  this  socially  necessary  charge  for  the  waste  of  human 
material,  than  the  thousand  and  one  restrictions  and  limita- 
tions with  which  the  application  of  the  compensation  principle 
is  hedged  in. 

Most  of  the  restrictions  are  based  upon  one  of  two  prin- 
ciples :  existence  of  hazard,  and  the  size  of  the  establishment. 
The  effort  to  limit  the  act  only  to  such  industries  as  might  be 
considered  dangerous  is  evident  in  many  acts — the  enumera- 
tion of  establishments  to  which  the  law  applies  often  takes 
pages,  thus  creating  a  complexity  that  is  hardly  justified.  In 
some  countries  in  addition  to  the  specified  industries,  all  other 
establishments  utilizing  mechanical  power,  or  handling  explo- 
sives, are  included.  One  can  see  in  these  provisions  the  recru- 
descence of  the  theory  of  "  trade  risk  "  which  recognizes  the 
justice  of  compensating  accidents  due  to  the  "  general  hazard  n 
but  has  not  risen  to  the  point  of  recognizing  the  right  of  com- 
pensation in  all  accidents,  no  matter  what  their  cause. 

Often  other  restrictions  are  found  which  are  based  upon  the 
number  of  persons  employed.  The  minimum  number  is  five 
in  Italy,  fifteen  in  Russia.  Artisan  establishments  are  ex- 
cluded in  some  countries,  work  on  buildings  under  thirty  or 
forty  feet  in  others.  All  such  provisions  are  efforts  to  protect 
small  industry,  which  is  assumed  to  be  too  weak  to  be  able 
to  stand  the  cost  of  the  compensation.  All  such  exceptions  are 
absolutely  antisocial;  they  are  not  based  upon  any  logical 
considerations,  and  no  industry  or  industrial  organization 
deserves  the  support  of  society,  which  can  only  exist  as  a 


116  SOCIAL  INSURANCE 

parasite,  by  shifting  upon  some  one  else  the  cost  of  human 
wreckage. 

All  the  features  above  discussed  are  problems  of  extension 
of  the  law.  They  are  not  so  much  faults  of  the  compensation 
system  as  of  the  insufficiency  of  its  application.  They  are 
faults  which,  as  experience  has  shown,  are  very  likely  to  be 
temporary  only.  The  first  introduction  of  the  compensation 
system  in  many  countries,  coming  after  an  obstinate  struggle, 
is  likely  to  be  experimental.  It  may  be  applied  to  a  limited 
sphere  only,  but  is  certain  to  be  gradually  extended,  because 
the  groups  of  wage-earners  left  unprotected  will  clamor  for 
such  extension.  But  there  are  other  differences  which  might 
be  termed  organic,  which  are  extremely  important,  and  these 
refer  to  the  scale  of  compensation. 

Under  a  liability  system  the  amount  of  damages  is  deter- 
mined by  a  jury.  If  the  fact  of  liability  is  established,  the 
damages  theoretically  must  at  least  equal  the  loss  sustained; 
and  in  the  determination  of  the  loss  sustained,  which  is  never 
done  scientifically,  such  elements  as  disfiguration,  mental 
anguish,  and  similar  non-economic  elements  are  often  taken 
cognizance  of.  As  compensation  is  a  measure  of  economic 
justice  only,  it  cannot  take  such  extraneous  factors  into  con- 
sideration. The  financial  value  of  pain  sustained  cannot  be 
measured  any  more  than  the  financial  value  of  a  life  of  a  be- 
loved husband  or  child ;  but  the  economic  loss  is  a  thing  easily 
determined.  The  limits  of  compensation,  therefore,  are  the 
full  loss  sustained.  In  no  compensation  act,  however,  is 
this  full  limit  provided  for. 

The  main  classification  of  accidents  according  to  results 
into  fatalities,  permanent  total  disability,  permanent  partial 
disability,  and  temporary  disability  has  already  been  ex- 
plained. 

The  cases  of  temporary  disability  are  by  far  the  most  nu- 
merous ones.  They  are  of  greater  importance  collectively 
than  individually.  The  loss  sustained  through  such  injury  is 
evidently  twofold:  the  temporary  loss  of  earnings  and  the 
extraordinary  expenditures  due  to  need  of  medical  and  surgi- 
cal help.  The  law  which  meets  only  the  first  and  not  the 
second  part  of  the  situation  created  goes  only  half-way,  for  it 
is  extremely  important  that  every  injury  be  treated  thoroughly 
and  thus  the  recovery  expedited  and  complications  prevented. 


NORMAL  COMPENSATION  LAW  117 

Moreover,  an  efficient  and  thoroughgoing  system  of  medical 
relief  must  reduce  the  duration  of  disability  and,  therefore, 
the  cost  of  compensation.  European  legislation  has  fully 
recognized  the  value  of  full  medical  treatment.  In  most  coun- 
tries full  medical  and  surgical  treatment  is  granted.  Of  the 
more  important  countries  on  the  Continent  the  only  exception 
is  Italy,  where  only  first  aid  is  provided.  No  medical  aid  is 
provided  by  the  law  in  Denmark,  Finland,  and  Sweden,  and  in 
the  United  Kingdom.  The  rule  in  the  last  country  was  par- 
ticularly injurious  in  its  results  because  of  the  influence  it 
exercised  in  other  English-speaking  countries.  Seven  of  the 
eight  British  possessions  having  compensation  laws  have  fol- 
lowed their  mother  country  in  this  particular,  and  the  same 
influence  is  felt  in  the  United  States  as  well. 

Equal  in  importance  is  the  financial  assistance.  In  order 
to  be  effective  this  assistance  must  come  promptly  and  periodi- 
cally— not  only  in  satisfaction  of  a  claim  for  expenses  incurred, 
but  actually  to  provide  a  substitute  for  the  missing  Saturday 
pay-envelope.  The  usual  amounts  are  either  50$  or  60$  of 
the  earnings.  The  smaller  amount  is  granted  in  Great  Britain 
and  in  all  the  British  possessions,  Belgium,  France,  Greece, 
Italy,  Hungary  (the  first  ten  weeks),  Luxemburg  (the  first 
four  weeks),  Russia,  Spain.  60$  is  granted  in  Austria,  Den- 
mark, Finland,  Hungary  (beginning  with  the  eleventh  week), 
Luxemburg  (five  to  thirteen  weeks),  and  Norway.  Germany 
has  made  the  compensation  66  2-3$,  beginning  with  the  fifth 
week,  also  Luxemburg  (beginning  with  the  fourteenth  week), 
and  Netherlands  has  made  it  70$.  Finally,  Switzerland  has 
reached  the  climax  by  raising  the  limit  to  80$.  The  universal 
practice  seems  to  be  to  adjust  the  compensation  in  proportion 
to  the  normal  earnings  of  the  family.  This  is  as  it  should  be, 
for  no  other  rule  granting  a  flat  amount  could  satisfy  the 
demands  either  of  justice  or  of  economic  necessity.  The  dif- 
ferences in  the  wage  levels  of  wage-earners  are  great.  The 
flat  level  compensation  would  be  either  too  great  in  some  cases, 
and  thus  offer  a  distinct  premium  upon  malingery,  or  much 
more  likely  such  as  to  be  cruelly  insufficient  in  many  cases. 

But  granting  the  adjustment  of  compensation  to  the  wage 
level,  what  proportion  shall  it  be  ?  The  prevailing  proportions 
we  found  to  be  either  one-half  or  two-thirds  of  the  wages, 
with  the  tendency  towards  the  latter.  With  the  low  level  of 


118  SOCIAL  INSURANCE 

wages  in  Europe,  the  50$  rate  must  be  adjudged  quite  insuf- 
ficient to  meet  the  economic  problem.  At  best  it  may,  and  in 
many  cases  may  not  even  provide  the  bare  necessities  of  food, 
and  it  is  questionable  whether  such  a  rate,  which  leaves  half  of 
the  economic  loss  uncompensated,  is  at  all  a  fair  realization 
of  the  compensation  principle. 

The  point  of  view  is  widely  prevalent  among  the  progressive 
wage-workers  of  Europe,  that  a  compensation  system,  to  be 
perfectly  satisfactory,  must  grant  full  compensation.  That 
would  mean  100$  of  wages.  Undoubtedly  such  a  system,  be- 
sides the  question  of  justice,  would  present  serious  adminis- 
trative difficulties,  for  it  would  offer  no  incentive  at  all  to 
recover  and  return  to  work;  on  the  contrary,  would  offer  a 
strong  inducement  for  malingery.  It  is  against  the  best  prin- 
ciples of  insurance  to  permit  over-insurance.  Thus  a  reduc- 
tion below  the  full  wages  is  necessary.  But  the  reduction  of 
the  compensation  to  50$  or  even  66$,  is  called  for  by  other 
considerations,  primarily  those  of  making  the  compensation 
system  as  cheap  as  possible.  The  example  of  the  Netherlands 
and  especially  that  of  Switzerland  are,  therefore,  exceedingly 
important.  It  is  a  recognition  of  the  essential  justice  of  the 
claim  for  full  compensation,  for  the  reduction  to  80$  may  be 
fully  justified  on  administrative  grounds.  Besides,  when  the 
expenses  of  the  workman  for  transportation,  for  lunch,  etc., 
and  the  possibility  of  unemployment  are  considered,  80$  comes 
very  near  to  being  full  compensation. 

The  problem  of  compensation  for  the  very  large  number  of 
petty  accidents  has  received  a  great  deal  of  attention  in 
European  discussions.  A  very  large  proportion  of  accidents 
are  quite  petty,  leading  to  a  disability  of  a  very  few  days  only. 
Evidently  it  is  a  great  advantage,  from  an  administrative  point 
of  view  especially,  if  these  accidents  are  kept  out  of  the  com- 
pensation system,  at  least  as  far  as  the  granting  of  financial 
aid  is  considered.  Fewer  accidents  need  to  be  investigated  and 
adjudicated.  On  the  other  hand,  even  a  short  disability 
means  some  loss  to  the  wage- worker,  which  he  must  rightfully 
resent.  It  is  unfair  to  him  to  saddle  upon  him  a  loss  which 
may  have  a  perceptible  influence  upon  his  comfort.  The  prob- 
lem is  met  in  a  very  effective  way  in  Germany,  Austria  and 
Hungary,  and  Russia,  four  countries  having  compulsory  sick- 
ness insurance  in  addition  to  the  accident  compensation  sys- 


NORMAL  COMPENSATION  LAW  119 

tern.  In  these  countries  only  accidents  of  a  certain  degree  of 
gravity  are  handled  by  the  compensation  system — fatal  acci- 
dents, all  cases  of  permanent  disability,  and  of  temporary 
disability  over  a  certain  fairly  long  period — thirteen  weeks  in 
Germany,  ten  weeks  in  Hungary,  and  four  weeks  in  Austria, 
the  minor  accidents  being  taken  care  of  by  the  sickness- 
insurance  organizations. 

In  other  countries  this  problem  is  met  in  a  very  much  less 
satisfactory  way.  Arbitrarily  all  accidents  below  a  certain 
duration  are  eliminated,  and  no  definite  rule  can  be  estab- 
lished for  all  countries.  In  Scandinavian  countries,  where 
even  in  absence  of  compulsory  sickness  insurance,  nearly  every 
workman  belongs  to  a  sick-benefit  fund — this  so-called  ' '  wait- 
ing period  "  is  long.  (Thirteen  weeks  in  Denmark;  sixty 
days  in  Sweden;  four  weeks  in  Norway.)  In  England,  where 
participation  in  a  friendly  society  is  quite  common,  there  is 
a  long  waiting  period  of  two  weeks,  and  its  example  is  followed 
by  several  British  colonies.  In  Belgium  and  also  in  several 
British  colonies  the  period  is  one  week.  It  becomes  six  days 
in  Finland,  four  days  in  France,  three  days  for  Austria,  Hun- 
gary, Russia ;  only  two  days  in  the  Netherlands,  and  there  is 
no  '  *  waiting  time  ' '  in  Italy  or  Spain. 

With  such  a  variety  of  facts,  it  is  difficult  to  establish  a 
logical  basis  for  a  normal  waiting  period.  There  can  be  but 
little  doubt,  however,  that  when  we  get  beyond  one  week,  we 
are  dealing  with  a  financial  loss,  which  may  represent  a  serious 
problem  in  the  life  of  many  a  worker's  family,  and  possibly 
the  limit  should  be  placed  at  half  a  week.  In  many  countries, 
the  shortening  of  the  waiting  time  became  an  issue,  earnestly 
attacked  by  the  workingmen,  and  successfully — as  in  Italy 
and  France.  Moreover,  experience  has  proved  that  these 
exceptions  made  for  economy's  sake  often  had  the  opposite 
effect,  as  they  served  as  a  stimulus  for  the  prolongation  of  the 
disability. 

Cases  of  total  permanent  disability  are  comparatively  rare, 
at  least  as  far  as  the  physical  condition  is  concerned,  though 
general  economic  conditions  of  employment  may  be  such  as  to 
transform  partial  disability  into  total,  by  depriving  a  man  of 
the  opportunity  to  find  employment.  Thus  the  chances  of  a 
man  who  has  lost  his  right  arm,  to  get  a  position,  must  be 
rather  slim. 


120  SOCIAL  INSURANCE 

Where  the  results  of  the  disability  are  permanent,  the  loss 
lasts  evidently  as  long  as  life  lasts,  and  so  does  the  economic 
need.  Full  justice  requires  that  the  support  last  equally 
long.  Otherwise  the  problem  is  not  met. 

The  general  practice  is  to  grant  in  total  permanent  dis- 
ability the  same  weekly  compensation  as  in  cases  of  temporary 
disability,  and  so  the  statements  given  above  apply  in  a  gen- 
eral way.  But  there  is  a  number  of  exceptions  to  this  general 
rule.  Thus  both  France  and  Russia  give  only  50$  in  case  of 
temporary  disability,  but  increase  it  to  66  2-3$  in  cases  of 
permanent  disability,  thus  adding  their  weight  to  the  view  that 
at  least  two-thirds  of  the  wages  are  necessary  to  make  a  fair 
compensation.  And  perhaps  the  most  notable  exception  is  that 
of  Germany,  which  provides  for  an  increase  of  the  permanent 
compensation  to  100$  in  case  the  injury  is  so  serious  as  not 
only  to  incapacitate  the  injured  from  work,  but  make  him  help- 
less and  in  need  of  constant  attention. 

In  a  few  countries,  however,  the  difference  in  treating 
temporary  and  permanent  disability  is  much  less  favorable  to 
the  latter.  The  discriminations  against  persons  permanently 
injured  are  of  two  kinds — first,  by  granting  them  a  periodical 
payment  of  a  limited  duration  and,  secondly,  by  substituting 
lump-sum  payments  for  periodical  payments  or  amounts. 

It  is  rather  difficult  to  say  which  of  these  two  plans  is  the 
more  vicious  one,  though  the  preponderance  of  arguments  is 
against  the  first  one. 

The  temporary  granting  of  periodical  payments,  i.e.,  so  that 
these  weekly  payments  last  only  for  a  time,  is  not  found  in  any 
European  country,  but  in  several  of  the  colonies  of  the  British 
Empire.  The  length  of  these  payments  is  not  definitely  stated, 
but  there  is  a  maximum  limit  ($1,500  to  $2,000)  to  the  total 
amount  of  payments,  and  after  this  amount  is  reached  the 
weekly  payments  stop.  With  the  maximum  weekly  payments 
the  limit  is  reached  in  six  or  eight  years,  and  if  the  person 
totally  disabled  survives,  he  may  then  be  left  in  very  much  the 
same  position  as  he  was  at  the  time  of  the  accident.  It  is  diffi- 
cult to  produce  any  arguments  in  favor  of  this  scheme,  except 
that  it  makes  the  total  cost  of  compensation  somewhat  lower 
to  the  employers. 

In  a  number  of  European  countries  an  entirely  different 
method  of  compensating  permanent  injuries  is  prevalent.  In- 


NORMAL  COMPENSATION  LAW  121 

stead  of  a  continuous  weekly  payment,  a  definite  lump  sum 
is  prescribed.  The  amount  varies  greatly.  Thus  in  Denmark 
the  amount  for  total  permanent  disability  is  six  times  the 
annual  wages,  and  in  Spain  only  two  years'  earnings.  The 
question  of  lump-sum  payments  has  received  a  thorough  dis- 
cussion in  European  literature.  The  arguments  in  its  favor 
are  more  palpable  in  absence  of  compulsory  insurance,  for  in 
case  of  many  small  employers  of  slight  financial  strength,  the 
security  of  prolonged  weekly  payments  is  somewhat  doubtful. 

Again,  a  lump  sum  may  enable  the  injured  person  or  his 
dependents  to  start  in  a  small  line  of  business  and  thus  gain  a 
permanent  footing.  But,  on  the  other  hand,  the  chances  of 
business  success  for  a  wage- worker,  or  even  the  chances  of  wise 
investment  in  absence  of  the  necessary  business  knowledge  and 
experience,  are  very  slight,  and  an  unwise  investment  with 
subsequent  financial  ruin  is  much  more  probable.  As  the  loss 
of  earning  power  is  the  loss  of  a  continuous  income,  so  the 
compensation  should  take  the  form  of  a  pension.  The  wasting 
of  large  amounts  in  inexperienced  hands  is  one  of  the  grave 
shortcomings  of  our  liability  system,  and  its  perpetuation  in  a 
compensation  system  is  extremely  unwise. 

The  argument  is  still  greater  against  the  provision  found  in 
many  acts  which  permits  the  capitalization  of  the  pension,  that 
is  the  conversion  of  the  pension  provided  by  law  into  a  lump 
sum  by  mutual  agreement,  unless  this  is  hedged  in  by  strict 
governmental  control.  Such  capitalization,  when  permitted  by 
mutual  agreement  alone,  is  likely  to  play  havoc  with  the  pen- 
sion of  the  insured.  To  a  wage-worker  a  comparatively  small 
amount  temptingly  displayed  in  cash  is  likely  to  look  very 
large,  and  the  injured  person  may  be  induced  to  accept  a  very 
much  smaller  amount  than  the  value  of  this  pension.  In  Great 
Britain  and  most  of  her  colonies  the  situation  is  further  ag- 
gravated by  giving  the  employer  the  right  to  force  a  lump  sum 
upon  the  employee,  though  there  is  a  slight  effort  made  to 
protect  the  workman  by  requiring  that  such  a  conversion  of  a 
pension  to  a  lump  sum  be  approved  by  a  court  if  not  volun- 
tarily agreed  upon. 

In  cases  of  partial  permanent  disability  the  rule  is  fairly 
uniform  that  a  proportionate  amount  must  be  given,  as  com- 
pared with  the  amount  granted  for  total  permanent  disability. 
By  this  the  following  is  meant ; 


122  SOCIAL  INSURANCE 

The  degree  of  partial  disability  must  be  determined  as  a 
percentage  of  the  loss  of  earning  capacity.  If  a  man 's  earning 
capacity  is  presumably  reduced  from  $20  a  week  to  $8,  then 
his  loss  is  $12  a  week,  or  60$.  The  compensation  due  for  this 
injury,  therefore,  bears  the  same  proportion  to  the  compen- 
sation for  total  permanent  injury,  whether  the  latter  be  a 
pension  or  a  lump  sum. 

Against  the  essential  equity  of  this  relationship  nothing 
may  be  said.  A  matter  of  tremendous  practical  importance, 
however,  is  the  machinery  for  determining  the  exact  degree 
of  disability.  This  is  not  an  easy  problem,  requiring  expert 
knowledge  which  must  be  both  medical  and  economic.  Sev- 
eral American  acts  in  the  inexperience  of  the  authors  have 
sought  to  establish  fixed  degrees  of  disability  in  the  text  of  the 
law  itself,  and  here  again  they  have  unnecessarily  blundered. 
Hardly  any  European  acts  undertake  to  do  that.  No  general 
rule  will  be  applicable  to  all  industries  and  occupations  except 
possibly  as  to  such  grave  injuries  as  complete  blindness  or 
loss  of  an  arm.  A  contraction  of  one  finger  to  an  engraver  or 
jeweler  may  be  as  serious  as  the  loss  of  a  leg  to  a  laborer.  Euro- 
pean accumulated  medical  experience  has  produced  a  set  of 
standards  which  are  extremely  useful  to  be  guided  by,  but 
discretion  is  left  in  all  acts  to  arbitration  as  to  the  degree  of 
disability  by  voluntary  agreement,  arbitration  committees,  or 
by  courts.  Evidently  a  proper  system  of  arbitration,  in  which 
the  interests  of  the  injured  persons  are  properly  represented 
and  protected,  an  arbitration  by  a  combination  of  medical 
experts  with  experts  in  the  particular  trade  to  which  the  in- 
jured workman  belonged,  represents  a  very  important  feature 
of  the  law,  and  such  arbitration  courts  are  even  more  impor- 
tant than  the  right  of  appeal  to  ordinary  courts. 

The  conversion  of  pensions  into  lump  sums  is  of  particular 
importance  in  the  case  of  partial  disabilities  of  a  mild 
character.  Where  the  degree  of  disability  is  very  small,  the 
machinery  for  weekly  payments  appears  too  cumbersome  for 
the  payment  of  a  small  live  pension,  and  the  conversion  of 
small  pensions  is  permitted  in  almost  all  countries  (Germany 
excepted).  Often  a  maximum  limit  to  the  pension  for  which 
conversion  is  allowed  may  be  found  in  the  law.  Under  these 
provisions  most  small  pensions  are  actually  converted.  Yet 
there  is  a  grave  objection  to  all  such  makeshifts.  If  an  acci- 


NORMAL  COMPENSATION  LAW  123 

dent  results  in  the  reduction  of  earnings  and,  therefore,  of  the 
standard,  a  lump  sum,  unless  wisely  invested,  cannot  at  all 
compensate  for  such  loss  and  leads  to  temporary  extravagance 
only. 

Compensation  for  fatal  accidents  is  perhaps  the  most  im- 
portant feature  of  any  compensation  scale.  While  an  injury 
leading  to  total  permanent  disability  is  more  serious  in  its 
economic  results  than  a  fatal  injury,  leaving  a  greater  need, 
yet  such  total  disability  is  rather  exceptional,  and  the  usual 
permanent  injury  does  not  absolutely  destroy  the  earning 
capacity.  But  a  fatal  injury  in  the  majority  of  cases 
leaves  several  dependent  persons  without  any  means  of  sup- 
port. 

The  two  methods  of  compensation — by  pensions  and  lump 
sums — which  were  discussed  in  connection  with  permanent  in- 
juries, present  a  still  greater  contrast  in  connection  with  fatal 
injuries.  In  the  majority  of  important  European  countries 
pensions  are  given  to  the  dependents. 

On  the  other  hand,  the  lump-sum  method  is  established  by 
the  British  law  and  followed  by  most  British  colonies,  and  in 
addition  by  a  few  other  European  countries,  namely,  Belgium, 
Italy,  Denmark,  and  Spain. 

The  advantages  of  pensions  over  lump-sum  payments  are 
even  greater  in  fatal  accidents  than  in  case  of  permanent 
injuries : 

1.  The  surviving  dependents  of  the  killed  workman,  either 
widow  or  orphans,  or  minor  brothers  or  aged  parents,  are 
usually  less  able  to  make  a  safe  investment  than  the  wage- 
earner  himself  would  be. 

2.  The  pension  method  is  a  much  more  elastic  one  than  the 
lump-sum  method,  and  may  be  much  more  carefully  adjusted 
to  the  needs  created  by  the  accident.    It  is,  therefore,  a  much 
more  scientific  method,  as  it  aims  to  meet  the  need  rather  than 
to  establish  a  definite  fine  for  the  accident. 

3.  The  pension  system  gives  proportionately  more  than  the 
lump-sum  system,  so  that  the  latter  may  be  considered  a 
shrewd  method  of  disguising  the  inadequacy  of  compensa- 
tion by  a  display  of  cash. 

Where  the  pensions  are  granted  the  total  amount  of  pen- 
sions depends  upon  the  number  or  relationship  of  surviv- 
ing dependents;  the  pension  is  expressed  in  percentages  of 


124  SOCIAL  INSURANCE 

the  wages,  and  definite  percentages  are  granted  to  certain 
relatives,  but  there  is  a  maximum,  and  the  rights  of  the  sur- 
viving relatives  follow  in  a  certain  rotation.  The  usual 
maximum  is  60$  of  the  wages  (France,  Germany,  Hungary, 
Luxemburg,  Netherlands).  Russia  was  the  only  country  with 
a  higher  maximum, — 66  2-3$, — until  the  Swiss  law  es- 
tablished a  new  record  at  70$.  Only  50$  are  allowed  in 
Austria,  Greece,  and  Norway;  only  40$  in  Finland;  while 
Sweden  and  New  South  Wales  offer  specific  pensions. 

As  the  object  of  compensation  is  the  removal  of  need 
rather  than  payment  of  damages,  compensation  laws  estab- 
lish their  own  classes  of  beneficiaries,  different  from  the  rules 
of  inheritance.  Not  the  fact  of  relationship  but  of  dependence 
is  of  decisive  value, — but  in  case  of  direct  relatives  this 
dependence  is  assumed  and  does  not  need  any  proofs.  This 
includes  the  widow  (in  some  countries  also  the  dependent 
widower)  and  children.  After  their  rights  are  satisfied  or 
in  absence  of  such  relatives,  the  parents  or  grandparents, 
brothers  and  sisters  and  grandchildren  may  become  the  bene- 
ficiaries under  the  law.  Beyond  such  ties  the  acts  are  seldom 
extended. 

Practically  in  all  countries  giving  pensions  to  the  sur- 
vivors, the  widow  receives,  of  her  own  right,  20$  of  the 
deceased  husband's  average  earnings.  In  the  Netherlands 
and  Switzerland  the  amount  is  30$,  and  in  Russia  33  1-3$. 
In  the  latter  country  this  high  amount  is  discounted  by  the 
extremely  low  wages,  which  are  often  insufficient  for  the 
support  of  the  entire  family.  If  the  normal  workingman's 
family  be  taken  at  4  1-2  or  5  persons,  25$  would  seem  to 
represent  an  equitable  proportion  if  she  alone  survives.  The 
widow's  pension  is  paid  until  death  or  remarriage,  in  which 
latter  case  a  lump  sum,  amounting  to  three  times  the  annual 
pension,  is  usually  granted  to  provide  for  the  expenses  of  a 
new  household. 

The  wisdom  of  this  provision  has  occasionally  been  ques- 
tioned. But  a  very  practical  advantage  may  be  cited.  If 
remarriage  is  to  be  penalized  by  a  sudden  and  final  discontinu- 
ance of  the  pension,  encouragement  is  given  to  the  establishment 
of  illicit  households,  where  the  pension  may  continue  though, 
as  a  matter  of  fact,  a  new  family  has  been  actually  established. 
The  grant  of  the  dowry  encourages  the  legalization  of  such 


NORMAL  COMPENSATION  LAW  125 

remarriages  and  thus  relieves  the  compensation  system  of  the 
further  burden  of  supporting  the  remarried  person. 

Next  in  importance  are  the  rights  of  children.  A  limit 
is  usually  placed  upon  the  age  of  children  entitled  to  com- 
pensation, because  at  a  certain  age,  which  is  very  much  lower 
for  the  working  class  than  for  other  social  groups,  the  child 
usually  becomes  self-supporting.  No  objection  can  be  raised 
against  the  justice  of  this  argument,  provided  the  age  is  not 
placed  too  low.  It  is  fifteen  in  Austria,  Norway,  Russia,  Fin- 
land, Germany,  Luxemburg,  France;  sixteen  in  Hungary, 
Netherlands,  and  Switzerland.  It  is  perhaps  worthy  of  notice 
that  in  Italy  children  up  to  eighteen  preserve  the  right  to 
compensation.  While  it  may  be  true  that  a  wage-worker's 
children  at  the  age  of  fifteen  usually  go  to  work,  they  are 
not  altogether  self-supporting  in  the  beginning,  remaining 
within  the  family  group;  besides,  children  under  sixteen  are 
frequently  prohibited  employment  in  many  occupations,  and 
the  modern  tendency  for  industrial  education  tends  to  prolong 
the  age  of  dependence  up  to  eighteen  years  at  least.  It  is 
unjust  that  a  fatal  injury  to  the  father  or  mother  should  force 
the  children  into  unskilled,  poorly-paid  trades.  Whatever 
the  situation  was  in  Europe  from  ten  to  twenty  years 
ago,  when  most  of  the  acts  were  passed,  at  the  present  time 
any  curtailment  of  the  rights  of  children  under  eighteen  is 
manifestly  unjust  and  socially  harmful.  The  usual  amount 
of  pension  is  15$  or  20$  for  each  child;  one  or  two  countries 
reduce  it  below  this  amount.  A  larger  pension  is  granted 
when  the  surviving  child  is  an  orphan.  But  there  is  an  iron- 
clad limit  to  the  total  amount  of  the  pension,  and  the  re- 
spective pensions  are  proportionately  reduced  when  the  com- 
bined pensions  exceed  the  limit. 

Parents  seldom  have  any  rights  for  compensation  unless 
there  is  a  residue  after  the  rights  of  widow  and  children  are 
satisfied.  This,  however,  is  no  small  proportion  of  cases,  as  it 
includes  all  fatal  accidents  to  unmarried  wage-workers. 

German  and  French  statistics  show  that  nearly  one-third  of 
workmen  fatally  injured  are  unmarried.  In  most  countries 
only  dependent  parents  and  grandparents  have  any  right  for 
compensation,  i.e.,  the  fact  of  dependency  must  be  established 
at  the  time  of  death.  In  the  nature  of  things,  however,  the 
aged  parents,  while  not  dependent  at  the  time,  might  expect  to 


126  SOCIAL  INSURANCE 

become  dependent  in  the  future,  especially  in  countries  having 
no  national  old-age  insurance  or  pension  system.  In  many  coun- 
tries, therefore,  the  wage-workers  have  clamored  that  the  rights 
of  aged  parents  be  recognized,  whether  they  were  actually 
dependent  upon  the  killed  workman  at  the  time  of  his  injury 
or  not. 

Another  matter  which  has  a  much  greater  practical  impor- 
tance than  would  appear  at  first  glance  is  the  compensation 
right  of  brothers  and  sisters.  Singularly  enough  their  rights 
are  quite  universally  disregarded.  Only  in  Italy  and  Russia 
are  their  rights  provided  for,  of  course  following  those  of 
immediate  family  and  dependent  parents.  Yet  it  is  quite 
usual  for  a  younger  person  to  contribute  to  the  family  budget, 
and  a  more  direct  support  of  younger  brothers  and  sisters  is 
a  matter  of  common  occurrence  in  the  wage-worker's  life. 
Since  over  one-third  of  the  fatal  accidents  occur  to  unmarried 
workmen,  and  since  parents  are  only  entitled  to  compensation 
when  their  dependency  is  established,  many  minor  brothers 
and  sisters  are  unjustly  deprived  of  their  means  of  support. 
These  facts  go  to  show  with  what  care  a  compensation  act 
must  be  drawn  if  it  is  to  accomplish  its  object  of  social  justice. 

Lump  sums  are  paid  for  death  in  some  countries.  The 
general  drawbacks  of  this  system  have  already  been  indicated. 
These  appear  very  much  more  serious  when  the  amounts 
granted  are  studied. 

The  highest  amount  in  proportion  to  earnings  is  granted 
in  Italy — five  years'  pay.  Denmark  follows  with  four,  and 
Great  Britain,  with  most  of  its  colonies,  with  three  years' 
compensation.  Spain,  with  perhaps  the  least  satisfactory  com- 
pensation law  in  Europe,  grants  two  years'  only,  and  Belgium 
has  a  singular  way  of  determining  the  amount  of  compensa- 
tion, it  being  the  present  value  of  an  annuity  of  30$  of  the 
earnings  of  the  killed  employee  at  the  age  at  death.  This  is 
evidently  an  effort  to  adjust  the  amount  of  compensation  to 
the  amount  of  loss  rather  than  the  need  created.  But  the  ad- 
justment is  far  from  being  a  satisfactory  one. 

When  a  lump  sum  is  given,  the  law  usually  furnishes  cer- 
tain rules  for  distribution.  But  in  Great  Britain  and  most 
of  her  colonies,  these  provisions  of  the  law  are  rather  crude — 
the  same  amount  is  given  irrespective  of  the  number  of  de- 
pendent survivors,  so  that  a  young  widow,  perhaps  remarrying 


NORMAL  COMPENSATION  LAW  127 

in  a  few  years,  might  get  as  much  as  a  large  family,  consisting 
of  widow,  parents,  and  several  small  children!  Half  of  the 
normal  amount  is  given  if  the  survivors  are  only  partly  de- 
pendent upon  the  deceased;  the  distribution  of  the  amounts 
is  not  definitely  established  and  recourse  must  be  had  to 
arbitration  or  to  courts,  so  that  even  from  an  administrative 
point  of  view  the  British  plan,  followed  by  her  colonies,  and 
unfortunately  by  some  of  the  American  states,  is  highly 
unsatisfactory. 

In  discussing  the  scale  of  compensation  the  various  amounts 
were  stated  in  terms  of  weekly  or  annual  wages.  But  these 
rules  need  many  qualifications.  In  most  countries  there  are 
both  maximum  and  minimum  limits  beyond  which  the  com- 
pensation cannot  rise  or  fall.  This  is  true  of  weekly  disability 
benefits  as  well  as  pensions  and  lump-sum  payments  for 
permanent  disability  and  fatal  accidents.  The  necessity  for 
minimum  limits  is  quite  evident.  The  margin  between  actual 
wages  and  the  minimum  necessary  for  existence  is  equally 
small  in  the  wage-worker's  budget,  and  often  there  is  none. 
The  minimum  provisions  are,  therefore,  an  indirect  admis- 
sion that  one-half  to  two-thirds  of  the  wages  may  not  be 
sufficient,  in  many  cases,  to  keep  up  even  the  minimum  of 
existence.  For  the  poorly  paid  groups  of  labor  a  more  liberal 
provision  must  be  made.  On  the  other  hand,  maxima  are 
still  more  frequently  provided  for ;  practically  all  the  acts  have 
such  maximum  limits  of  compensation.  Their  purpose  is 
evident — to  reduce  "  excessive  "  compensation  in  the  case  of 
the  higher  paid  workman.  Their  justice  may  be  questioned, 
for  a  one-half -the-wages  level,  or  even  a  two-thirds-the-wages 
level,  places  upon  the  workingman  a  sufficient  share. of  the 
economic  loss.  But  provided  the  maximum  limit  is  placed 
high  enough,  only  a  small  proportion  of  the  workmen  is  af- 
fected materially  thereby.  Here  various  methods  are  used. 
In  some  countries  an  absolute  limit  of  weekly  compensation 
is  provided  for.  It  is  highest  in  some  British  colonies :  £2  in 
Cape  of  Good  Hope,  in  Australia,  New  Zealand;  $10  in  Al- 
berta and  in  British  Columbia;  only  £1  in  Great  Britain,  in 
Queensland,  in  South  Australia.  It  is  much  smaller  in  some 
countries  of  continental  Europe — from  45  to  50  cents  a  day 
in  Denmark,  Finland,  Netherlands.  In  other  countries  a 
maximum  or  daily  wage  is  assumed.  It  is  1,200  florins,  or 


128  SOCIAL  INSURANCE 

$487.20,  in  Austria  and  Hungary;  2,400  francs,  or  $463.20,  in 
Belgium;  200  crowns  ($321.60)  in  Norway.  Somewhat  more 
complicated  and  representing  an  effort  at  greater  justice,  is 
the  method  of  recognizing  a  portion  of  the  wages  above  a 
certain  limit  rather  than  disregarding  the  excess  at  all.  Thus, 
in  Germany,  when  the  annual  earnings  exceed  1,500  Marks 
($357),  one-third  of  the  excess  is  taken  into  consideration  in 
computing  the  compensation;  a  2,000-Marks  wage  becomes 
1,666.66  Marks,  a  2,500-Marks  wage,  1,833.33  Marks,  etc.  In 
France  there  is  a  similar  rule,  though  the  proportion  is  one- 
quarter  over  2,400  francs.  These  rules  are  primarily  interest- 
ing as  indicating  the  complexity  of  results  of  a  clash  between 
two  contradictory  principles:  justice  to  the  injured  worker 
and  protection  of  the  employer's  interests  by  reducing  the 
cost  of  compensation.  The  wisdom  of  these  minute  regulations 
is  subject  to  some  doubt.  If  the  maximum  is  placed  so  low 
that  a  considerable  proportion  of  workmen  is  affected  thereby, 
then  we  are  facing  a  rather  objectionable  method  of  reducing 
the  level  of  compensation  in  a  stealthy  way.  If,  on  the 
other  hand,  the  maximum  is  placed  so  high  as  to  affect  few 
injured  workmen — the  savings  are  slight,  and  the  result 
scarcely  justifies  the  complexity  of  the  regulations. 

Still  more  objectionable  are  the  limits  for  death  benefits 
which  are  found  in  the  laws  of  those  countries  where  lump 
sums  instead  of  pensions  are  provided.  There  arises  out  of 
the  contemplation  of  these  limits  a  conception  of  the  value 
of  human  life  which  is  quite  distressing  when  the  modern  cost 
of  living  is  considered.  In  twelve  countries  these  limits  may  be 
found — three  countries  in  Europe  and  nine  British  colonies. 

MINIMUM   AND  MAXIMUM   LIMITS  OF   COMPENSATION   FOR   FATAL 

ACCIDENTS 

Denmark   $  321.60  $  857.60 

Great  Britain 729.98  1459.95 

Italy  579.00  1930.00 

Alberta    1000.00  1800.00 

British  Columbia 1000.00  1500.00 

Quebec  1000.00  2000.00 

New  Zealand  and  Queensland 973 . 30  1946 . 60 

S.  Australia  729.98  1459.95 

W.  Australia   973.30  1946.60 

Cape  of  Good  Hope 1946.60 

Transvaal   .                             2433.25 


NORMAL  COMPENSATION  LAW  129 

Thus,  in  the  British  colonies,  with  their  higher  wage  level 
and  their  high  cost  of  living,  the  limits  are  between  $1,000  and 
$2,000.  In  the  European  countries  mentioned  they  are  very 
much  lower.  It  is  absurd  to  consider  such  levels  satisfactory. 
It  is  evident,  therefore,  that  in  these  limits  we  are  dealing  with 
a  "  detail  "  which  is  often  hidden  away  in  a  corner  of  a  law, 
but  which  nullifies  the  main  purpose  of  the  act, — the  preven- 
tion of  destitution.  This  eloquent  table  of  limits  emphatically 
underscores  the  conclusion  expressed  above,  that  the  lump-sum 
method  is  doubly  objectionable — not  only  because  it  is  unwise, 
but  because  it  is  dishonest,  in  that  under  a  deceiving  cloak 
of  glittering  cash,  it  offers  compensation  which  utterly  fails 
to  compensate. 

As  the  funeral  expenses  are  the  natural  result  of  the  fatal 
accidents,  some  provision  for  this  extraordinary  and  unex- 
pected expenditure  must  be  made  by  the  compensation  laws. 
Most  compensation  acts  which  grant  pensions  for  death  con- 
tain such  provisions,  while  they  are  usually  absent  from  laws 
granting  lump  sums.  The  average  amounts  granted  are  not 
large,  amounting  from  $10  to  $25.  The  granting  of  lump  sums 
among  other  things  encourages  extravagance  of  funeral,  per- 
haps the  most  wasteful  form  of  extravagance  imaginable. 
While  the  amounts  granted  by  Continental  laws  are  small, 
they  are  probably  sufficient  in  establishing  a  modest  definite 
standard  of  funerals. 

A  very  interesting  question  likely  to  be  asked  by  the  Amer- 
ican reader,  in  view  of  recent  American  discussions,  is :  Who 
bears  the  cost  of  this  compensation?  Is  it  all  at  the  cost  of 
the  employer,  or  does  the  employed  class  also  contribute  its 
share  ? 

But  though  contributions  from  both  employer  and  em- 
ployee are  almost  the  universal  rule  in  all  other  forms  of 
social  insurance  against  sickness,  invalidity,  old  age,  and 
unemployment,  this  question  could  hardly  occur  to  a  Euro- 
pean student  as  far  as  accident  insurance  is  concerned.  For, 
as  compensation  grew  out  of  employer's  liability,  it  naturally 
and  justly  remained  a  charge  upon  industry,  for  the  employer 
to  assume  and  to  distribute  further  if  necessary. 

Curiously  enough,  a  very  serious  misconception  as  regards 
this  feature  of  compensation  in  Europe  has  found  its  way  into 
American  popular  literature,  because  of  a  very  hasty  study  of 


130  SOCIAL  INSURANCE 

European  legislation  by  some  rather  superficial  investigators. 
In  the  pretentious  volume  of  Messrs.  Fred  C.  Schwedtman  and 
James  E.  Emery,  representing  a  first-hand  study  of  compen- 
sation in  Europe,  there  is  a  diagram  x  entitled,  * '  Contribut- 
ing Principle  in  Europe."  A  statement  under  the  diagram 
reads,  "  workmen  or  state  contribute  in  Austria,  Denmark, 
France,  Germany,  Luxemburg,  Norway,  Sweden."  The  dia- 
gram itself  aims  to  illustrate  the  same  statement  graphically. 
It  is  not  altogether  certain  just  what  is  meant  by  this  some- 
what ambiguous  statement,  nor  where  the  information  was 
obtained.  But  to  say  that  it  is  inaccurate  and  misleading  is 
to  treat  it  in  quite  a  charitable  spirit.  For  if  the  authors 
had  in  mind  the  indirect  state  contributions  that  come  from 
state  insurance,  they  should  have  included  Italy.  And  if  they 
really  had  in  mind  workers'  contributions,  the  only  country 
where  these  are  exacted  is  Austria,  where  the  employers  are 
permitted  to  deduct  10$  of  the  cost  of  accident  insurance  and 
compensation  from  the  wages  of  the  employees.  In  this  re- 
spect Austria  occupies  a  unique  position  in  Europe,  one  that 
has  been  severely  criticised,  and  the  demand  for  the  abolition 
of  this  feature  in  Austria  is  loud,  and  in  the  plans  for  the  re- 
form of  the  Austrian  system  the  abolition  of  this  charge  is 
included. 

The  explanation  of  this  misconception,  in  regard  to  Germany 
and  other  countries,  is  found  in  the  fact  of  the  waiting  time 
which  was  discussed  above.  The  accident  compensation  sys- 
tem in  Germany,  for  instance,  does  not  take  charge  of  any 
accident  until  thirteen  weeks  have  elapsed,  because  until  that 
period  is  over,  the  accident  is  taken  care  of  by  the  sickness- 
insurance  system.  The  same  is  true  of  Austria  for  four  weeks, 
and  because  this  period  is  shorter  than  that  in  Germany,  the 
Austrian  system,  which  was  organized  very  shortly  after  the 
German  one,  tried  to  recoup  itself  by  charging  the  employer 
one-tenth. 

But  is  the  inference  justified  that  because  the  accidental 
injuries  for  the  first  thirteen  weeks  are  taken  care  of  by  the 
sickness-insurance  system — the  workman  contributes  to  the 
cost  of  compensation?  It  is  true  that  the  employees  bear  the 

1  Accident  Prevention  and  Relief,  by  Fred  C.  Schwedtman  and  James 
E.  Emery,  published  by  the  National  Association  of  Manufacturers  of 
the  United  States  of  America,  1911,  p.  14. 


NORMAL  COMPENSATION  LAW  131 

greatest  share  of  the  cost  of  the  sickness-insurance  system — 
two-thirds,  while  the  employer  contributes  one-third.  But  the 
contribution  by  the  employer  of  one-third  of  the  total  cost  of 
sickness  insurance  finds  one  of  its  justifications  in  this  very 
fact  that  the  sickness-insurance  system  handles  the  minor  ac- 
cidents. There  are  no  comprehensive  data  by  which  it  could 
be  ascertained  how  much  the  compensating  of  these  minor 
accidents  costs.  But  the  very  wide  experience  of  the  famous 
Leipsic  sick-insurance  fund  shows  that  industrial  accidents 
claimed  7.7$  of  the  total  amount  of  sickness  cared  for  by  the 
fund.  As  the  employers  contributed  33.3$  of  the  cost,  indus- 
trial accidents  claimed  less  than  one-fourth  of  the  employers' 
contribution.  If  that  cost  is  discounted,  the  employers  still 
contribute  over  one-fourth  to  the  total  sick-insurance  budget. 
And  this  arrangement,  primarily  explained  by  very  material 
administrative  considerations,  is  all  there  is  to  the  statement 
that  Germany  has  a  contributing  system  of  accident  compensa- 
tion. The  same  situation  obtains  in  Luxemburg  and  Hun- 
gary (which  Schedtman  and  Emery  place  in  the  contributing 
class),  in  Austria  (for  four  weeks),  and  in  Norway. 

It  is  true  that  in  Denmark  and  Sweden  there  are  long 
waiting  periods  (thirteen  weeks  and  sixty  days  respectively), 
without  a  system  of  compulsory  sickness  insurance,  the  jus- 
tification being  found  in  the  prevalence  of  voluntary  sickness 
insurance  among  workmen.  But  it  would  seem  to  be  much 
more  in  accordance  with  facts  to  state  that  the  minor  acci- 
dents are  not  compensated  in  these  countries,  than  to  label 
their  systems  "  contributory."  And,  finally,  as  far  as  France 
is  concerned,  there  is  no  justification  at  all  for  including  it 
among  contributing  countries,  for  each  accident  after  four 
days  is  compensated. 

And  so  the  almost  unanimous  verdict  of  Europe  is  that  the 
wage-worker  should  not  contribute  to  the  cost  of  accident  com- 
pensation. He  contributes  in  a  different  way,  in  physical 
pain,  mental  anguish,  and  in  loss  of  compensation  in  certain 
cases,  but  to  dub  these  conditions  a  contributing  system  is  an 
unjustifiable  juggling  with  words. 

It  is  to  be  regretted,  therefore,  that  this  plan  to  burden 
the  workingman  with  part  of  the  cost  of  accident  compensa- 
tion should  have  for  some  time  found  so  many  adherents  in 
the  country  as  it  did,  and  among  vastly  different  circles.  A 


132  SOCIAL  INSURANCE 

few  students  of  accident  causation  and  prevention  thought 
that  herein  lay  an  additional  factor  of  prevention.  An  elo- 
quent pleader  for  social  insurance,  Mr.  Frank  W.  Lewis,  de- 
mands it  because  of  general  theories  of  incidence  of  the  insur- 
ance cost. 

"  The  cost  of  workman's  insurance  should  fall  upon  workmen,  and 
should  distinctly  come  out  of  their  wages;  .  .  .  there  could  be  no 
gain  through  any  disguise  or  indirection ;  ...  it  would  necessarily 
lead  to  a  readjustment  of  wages  wherever  inadequate  to  conform  to 
the  requirements  of  a  real  living  wage,  a  living  wage  based  upon 
the  whole  life  and  not  upon  a  fraction,  to  include  the  waste  as  well 
as  the  productive  portion."  2 

That  this  is  a  beautiful  sentiment  no  one  will  deny.  But 
withholding  a  more  thorough  discussion  of  the  problems  of 
incidence  of  social  insurance  as  a  whole  for  a  later  chapter,  it  is 
sufficient,  in  answer,  to  quote  here  the  equally  brilliant  state- 
ment by  the  same  author  in  the  same  book,  which  he  uses  as 
a  motto : 

"  It  happens  as  though  through  some  inadvertence  that  in  making 
a  contract  of  the  greatest  possible  moment,  both  parties  seem  to 
ignore  absolutely,  certain  very  important  elements.  The  contract  is 
made  as  though  sickness,  accidents,  invalidity,  and  old  age  had  been 
permanently  banished  from  the  earth.  The  daily  wage  is  sufficient 
only  for  daily  necessities.  A  man  entitled  to  support  for  a  lifetime 
unwittingly  consents  to  a  wage  based  upon  a  portion  of  that  lifetime." 

There  is  the  satisfactory  explanation  for  the  workman's 
objection  to  the  cost  of  compensation  being  charged  to  him. 
Whatever  the  theory  of  wages  may  be,  the  workman  in- 
stinctively feels  what  an  economic  student  should  know — that 
an  upward  adjustment  of  wages,  no  matter  how  much  justified 
by  conditions,  is  slow  and  difficult  work. 

In  the  above  discussion,  the  main  essential  features  of  a 
normal  compensation  act  were  analyzed.  There  are  a  good 
many  other  features  which  are  important.  There  is  the  ques- 
tion of  insurance  and  of  security  of  payments  which  will  be 
considered  in  the  following  chapter.  There  is,  furthermore, 
the  vast  field  of  problems  arising  in  connection  with  the  ad- 
ministration of  the  law  which  we  must  of  necessity  pass  over, 
such  as  the  matter  of  proper  organization  of  medical  relief, 

9  State  Insurance,  a  Social  and  Industrial  Need,  p.p.  145-47. 


NORMAL  COMPENSATION  LAW  133 

of  arbitration,  settlement  of  disputes,  prevention  of  malingery, 
etc.  But  enough  has  been  said  to  indicate  the  normal  pro- 
visions of  a  satisfactory  compensation  act  if  it  is  to  accom- 
plish its  essential  purpose.  It  must  include  all  employment,  as 
no  logical  discrimination  can  be  defended.  It  must  entirely  do 
away  with  any  vestige  of  the  old  principles  of  fault.  It  must 
grant  sufficient  compensation,  and  it  must  do  so  at  the  cost  of 
the  employer. 

The  last  demand  requires  at  least  two-thirds  and  possibly 
three-quarters  of  the  wages  and  sufficient  medical  and  surgical 
aid.  From  the  standpoint  of  society  at  large  no  provision  for 
medical  aid  can  be  made  too  liberal.  It  must  clearly  recognize 
permanent  disability,  total  as  well  as  partial.  It  need  not 
embody  in  the  law  any  definite  scale  of  injuries,  but  must  pro- 
vide for  proper  administrative  organs,  with  medical  and 
technical  expert  knowledge,  for  making  a  determination  of 
partial  disability  that  will  be  equitable  not  only  surgically  but 
economically.  And,  above  all,  the  demand  for  continuous 
compensation  must  be  enforced  and  lump  sums  must  be  con- 
demned. 

In  case  of  fatal  accidents  specific  pensions  must  be  deter- 
mined. In  this  the  right  of  parents  and  brothers  and  sisters 
must  be  recognized.  Funeral  benefits  must  be  specifically 
provided  for.  Minimum  standards  of  pensions  irrespective 
of  wages  must  be  established,  and  on  the  average  wage  level 
a  maximum  pension  of  two-thirds  with  the  rights  of  children 
recognized  until  eighteen  years  of  age.  Only  when  these  re- 
quirements are  met,  does  the  compensation  system  accomplish 
its  purpose,  that  of  preventing  industrial  accidents  from  de- 
pressing the  normal  standard  of  life  of  the  victims  and  their 
dependents,  directly,  and  indirectly,  by  forced  competition,  of 
the  working  class  as  a  whole. 


CHAPTER  IX 
ORGANIZATION  OF  ACCIDENT  INSURANCE 

THE  treatment  of  the  subject  thus  far  may  be  criticised  in 
that  so  little  was  said  about  accident  insurance.  This  criticism 
would  in  a  measure  be  based  upon  too  narrow  an  inter- 
pretation of  the  term  "  insurance. "  As  insurance  is  a  method 
of  guarantee  against  the  economic  loss  due  to  an  exceptional 
occurrence,  and  as  the  purpose  of  all  compensation  is  to  pro- 
tect the  wage-worker  against  such  loss  in  case  of  industrial 
accidents,  all  compensation  legislation  may  be  considered  as 
a  form  of  insurance.  It  is  true  that  it  lacks  the  one  essential 
feature  of  insurance — the  distribution  of  the  loss  among 
many.  Compensation  pure  and  simple  only  shifts  the  loss 
from  the  wage-worker  to  his  employer. 

As  a  matter  of  fact,  a  further  shifting  of  this  burden  from 
the  employer  to  some  form  of  insurance  institution  usually 
takes  place.  It  is  manifestly  dangerous  for  the  average  em- 
ployer (with  the  exception  of  the  very  large  ones)  to  assume 
the  entire  risk  of  compensation.  One  serious  accident  may 
lead  to  a  very  heavy  expenditure  for  compensation.  If  the 
accident  should  injure  several  workmen,  as,  for  instance,  the 
explosion  of  a  boiler,  or  the  collapse  of  a  building  or  a  con- 
flagration is  likely  to  do,  the  accident  may  spell  instantaneous 
ruin  to  even  a  fairly  safe  industrial  undertaking.  It  is  evi- 
dent, therefore,  that  the  question  of  insurance  is  of  primary 
importance  to  the  employer  rather  than  to  the  employee.  But 
there  are  several  good  reasons  why  the  workingmen  may  not 
remain  perfectly  indifferent  to  this  question. 

First,  is  the  question  of  security  of  payment.  Under  a 
purely  individualistic  form  of  compensation,  such  as,  for  in- 
stance, exists  in  Great  Britain,  all  her  colonies  and  a  few 
other  countries,  the  law  simply  establishes  a  new  claim,  but 
makes  no  special  provision  for  its  satisfaction.  If  the  employer 
is  willing  and  able  to  pay  the  amounts  due  under  the  law — well 
and  good.  If  not,  the  claim  must  take  the  ordinary  method 

134 


ORGANIZATION  OF  ACCIDENT  INSURANCE     135 

of  procedure — a  complaint  in  court,  judgment,  etc.  When 
that  point  is  reached,  the  question  of  solvency  of  the  em- 
ployer arises.  Manifestly  the  state  cannot  guarantee  the 
solvency  of  all  employers  of  labor.  Most  countries  meet  the 
difficulty  by  giving  the  claims  under  the  compensation  law  a 
preferred  standing  among  the  claims  under  the  bankruptcy 
law.  This  may  not  be  sufficient  to  satisfy  the  claim.  The 
employer  may  die,  or  go  out  of  business,  or  sell  out,  and  the 
effort  to  collect  the  amount  of  claim  from  the  estate  or  the 
retired  employer  or  from  the  business  successor  may  all  pre- 
sent various  difficulties.  It  may  be  argued  that  in  this  case 
the  position  of  the  claimant  is  not  different  from  any  other 
creditor,  and  that  it  is  the  business  of  the  state  to  establish 
and  define  the  various  property  rights  and  not  to  protect  all 
the  creditors  against  the  possibility  of  failure  of  all  debtors. 
This  argument,  while  eminently  right  from  the  legal  point  of 
view,  will  not  feed  the  hungry  or  clothe  the  naked.  More- 
over, it  misses  the  fact  that  the  claimant  under  the  compen- 
sation law  is  not  a  man  who  has  voluntarily  extended  his 
credit  to  his  employer,  and  who,  therefore,  should  suffer  for 
his  credulity.  In  view  of  the  very  large  number  of  insolven- 
cies, even  in  normal  years,  and  especially  in  years  of  business 
depression,  the  danger  of  the  best  compensation  law  being  thus 
nullified  in  many  cases  is  not  an  imaginary  one.  A  transfer 
of  the  risk  from  the  employer  to  the  insurance  company  does 
away  with  that  uncertainty.  While  insurance  companies  will 
occasionally  fail,  the  state,  by  exercising  careful  supervision 
over  their  finances  and  by  exacting  sufficiently  large  guarantee 
deposits,  can  usually  protect  the  interests  of  the  insured  so 
that  the  stockholders  are  the  only  sufferers  from  the  failure. 

There  are,  in  addition,  other  methods  for  guaranteeing  the 
interests  of  the  insured  employees.  It  is  in  some  of  the  coun- 
tries without  compulsory  insurance  that  the  other  method  of 
guaranteeing  the  payments  due  under  the  compensation  act  is 
found.  It  is  known  as  the  French  method,  as  it  was  put  in 
force  first  in  1898  in  France,  though  it  also  obtains  in  Italy 
and  in  Belgium.  It  is  the  method  of  a  state  guarantee 
fund. 

The  principle  of  this  is  extremely  simple.  Where  the  em- 
ployer fails  to  pay  the  compensation,  after  it  has  been  granted 
by  the  proper  judicial  authority,  either  because  of  insolvency 


136  SOCIAL  INSURANCE 

or  for  any  other  reason,  the  state  satisfies  the  claim.  For  this 
purpose  the  state  has  a  special  fund  at  its  disposal,  which 
it  gathers  by  means  of  a  very  small  special  tax  upon  all  em- 
ployers subject  to  the  law.  There  has  been  a  good  deal  of 
criticism  because  all  employers, — those  who  do  not  insure  as 
well  as  those  who  do, — have  to  contribute  to  this  special 
guarantee  fund,  but  the  amount  of  the  tax  is  so  slight  that  the 
objections  to  this  burden  cannot  be  very  urgent.  The  total 
income  has  averaged  about  2,000,000  francs  and  even  proved 
excessive,  so  that  this  special  tax  is  being  reduced. 

In  Belgium  the  tax  is  levied  only  upon  the  uninsured  em- 
ployers, and  is  likewise  very  small — less  than  10  cents  per 
annum  for  each  employee.  In  Italy,  the  guarantee  fund  is  con- 
stituted by  fines,  and  also  the  compensation  in  fatal  accidents 
where  the  victims  leave  no  dependents — instead  of  a  special 
tax.  But  the  possibility  of  funds  unnecessarily  accumulating 
is  foreseen,  and  the  special  guarantee  fund  is  permitted  to 
utilize  its  moneys  for  other  purposes  related  to  compensation. 
In  other  words,  the  problem  of  guaranteeing  the  payment  of 
compensation  admits  of  an  easy  solution  even  outside  of  the 
system  of  compulsory  insurance,  and  other  arguments  must  be 
furnished  in  favor  of  such  a  system. 

There  is  another  reason  why  the  wage-worker  may  prefer 
an  insurance  condition  to  that  of  simple  compensation.  When 
a  claim  arises  out  of  an  injury,  it  is,  under  an  insurance  sys- 
tem, treated  by  an  insurance  institution  in  a  somewhat  im- 
personal way.  It  does  not,  therefore,  lead  to  any  personal 
acute  antagonism  between  employer  and  employee,  and,  there- 
fore, does  not  lead  to  discontinuance  of  employment.  For 
these  reasons  a  proper  organization  of  insurance  is  desirable 
from  the  employee's  point  of  view. 

Nevertheless  it  is  true  that  the  question  is  primarily  the 
employer's  question,  and  as  such  it  has  been  treated  in  most 
countries. 

Like  a  great  many  other  forms  of  insurance,  accident  insur- 
ance traces  its  origin  to  Great  Britain,  and  the  earliest  form — 
a  form  which  has  within  the  last  twenty-five  years  achieved  a 
great  development  in  the  United  States,  is  the  individual  acci- 
dent insurance,  known  in  the  United  States  as  commercial 
accident  insurance. 

This  form  of  insurance  mainly  developed  among  the  classes 


ORGANIZATION  OF  ACCIDENT  INSURANCE     137 

of  higher  economic  standing,  and  covered  ordinary  accidents 
of  life  rather  than  industrial  accidents.  For  one  thing,  private 
accident  insurance  companies  in  order  to  make  their  business 
profitable,  have  often  declined  to  accept  the  risk  of  industrial 
wage-workers,  especially  in  hazardous  occupations,  and  a  great 
many  of  them  still  do  so.  As  far  back  as  1868,  France  made 
the  effort  to  meet  this  need  of  the  workman  for  accident  insur- 
ance by  organizing  a  national  institution,  where  the  working- 
man  could  individually  insure  at  cost,  because  of  the  absence 
of  any  element  of  profit  or  any  cost  of  soliciting  business,  but 
the  results  were  ridiculously  small  and  underscored  the  in- 
ability or  unwillingness  of  the  French  workingman  to  pay  the 
premium  out  of  his  own  earnings. 

Out  of  this  individual  accident  insurance,  another  form 
of  private  insurance  of  greater  importance  to  wage-workers 
grew  up,  which  is  known  as  workmen's  collective  insurance. 
While  unwilling  to  accept  the  risk  of  an  individual  workman 
in  a  hazardous  trade,  because  of  the  fear  that  only  those  in 
most  dangerous  occupations  would  insure,  private  insurance 
companies  were  ready  to  accept  a  collective  contract.  This 
usually  embraced  all  or  most  employees  of  an  establishment — 
those  least  subject  to  danger  as  well  as  those  in  dangerous 
places.  Moreover,  it  created  for  the  insurance  companies,  at 
once,  a  large  volume  of  business,  which  made  the  expense  of 
obtaining  the  business  less  and,  therefore,  the  business  more 
profitable,  and,  finally,  it  usually  contained  a  very  modest 
scale  of  insurance  as  compared  with  individual  accident  insur- 
ance. In  many  cases  the  insured  employees  themselves  paid 
for  this  form  of  insurance,  but  it  was  quite  common  for  the 
employer  to  meet  half  or  even  the  whole  cost  of  this  insurance. 
The  moving  forces  were  either  a  certain  benevolent  intent  of 
the  employer,  or  more  frequently  sound  business  policy,  be- 
cause when  provided  with  some  form  of  relief  the  injured 
workman  was  less  likely  to  sue  for  damages  in  case  of  an 
accident.  In  some  cases  the  workmen  insisted  upon  such 
insurance  as  a  part  of  their  wage-contract. 

The  data  available  for  some  countries  indicate  considerable 
development  of  this  form  of  insurance.  Thus,  in  France,  more 
than  3,000,000  workingmen  were  insured  by  1899.  In  Russia 
the  number  of  workingmen  insured  under  this  collective  policy 
in  1900  reached  936,000.  In  Italy  a  national  Accident  In- 


138  SOCIAL  INSURANCE 

surance  Institution  was  established  in  1883,  primarily  for  this 
form  of  insurance,  and  the  number  of  workingmen  insured 
reached  200,000  in  1898,  when  the  compensation  act  was 
passed.  In  Switzerland  450,000  workmen  were  thus  insured 
in  1910,  while  the  employers  who  cared  to  protect  themselves 
only  with  employer's  liability  insurance  did  not  employ  over 
40,000  persons.  Similar  developments  took  place  in  other 
countries  which  had  no  compensation  laws. 

This  development  was  not  able  to  meet  the  entire  problem. 
Only  the  best  among  the  employers  were  willing  voluntarily 
to  contribute  to  the  cost  of  this  accident  insurance,  and,  more- 
over, the  amount  of  the  insurance  carried  under  this  system 
was  very  small.  One  thousand  days'  pay,  i.e.,  less  than 
three  years'  remuneration,  was  usually  the  highest  amount 
written,  and  it  often  dropped  to  800,  700,  or  even  500  days' 
pay. 

An  entirely  different  line  of  development  is  that  of  em- 
ployer's liability  insurance,  which  has  grown  to  very  large 
dimensions,  especially  in  England  and  in  the  United  States. 
A  good  deal  of  the  criticism  of  the  activity  of  liability  insur- 
ance companies  as  to  their  high  legal  expenses  and  low  pro- 
portion of  the  premiums  which  reaches  the  injured  workman, 
is  evidently  based  upon  an  entire  misconception  of  the  nature 
of  liability  insurance.  Not  only  the  public  at  large,  but  many 
employees  and  insured  employers,  labor  under  the  misappre- 
hension that  the  employee  is  in  some  way  protected  by  the 
liability  insurance  contract,  which  is  manifestly  incorrect. 
Liability  insurance,  as  practised  under  liability  laws,  estab- 
lishes no  legal  relations  between  workman  and  insurance  com- 
pany and  confers  no  additional  rights  upon  the  former.  It 
simply  establishes  a  contractual  relationship  between  employer 
and  insurance  company  in  virtue  of  which  the  company  reim- 
burses the  employer  only  in  case  the  latter  pays  a  judgment  of 
a  court  in  favor  of  the  injured  employee.  It  is  undoubtedly 
true  that  the  insurance  company  has  better  legal  means  of 
fighting  the  suit  of  the  injured  person.  But,  on  the  other 
hand,  the  injured  person  sues  more  frequently  because  he 
knows  that  he  is  dealing,  though  indirectly,  with  the  insur- 
ance company,  and  that  the  employer  will  not  make  any  very 
obstinate  fight  against  the  claim,  since  he  will  not  be  a  loser 
thereby.  The  severe  criticism  often  directed  against  liability 


ORGANIZATION  OF  ACCIDENT  INSURANCE     139 

insurance  companies  should  really  be  addressed  to  the 
liability  system  which  has  created  the  liability  insurance 
company. 

Thus,  these  two  systems  of  private  insurance — liability  and 
workingmen  's  collective — though  often  conducted  by  the  same 
companies  are  based  upon  entirely  different  principles.  But 
they  had  one  feature  in  common — in  both  the  expense  of  con- 
ducting the  business  was  extremely  heavy,  which  inevitably 
adds  to  the  cost  of  insurance. 

Various  efforts  were  therefore  made,  both  by  the  state  and 
by  the  employers,  to  make  the  insurance  cheaper.  The  efforts 
of  many  states  were  directed  mainly  towards  encouraging 
the  workmen's  collective  form,  and  in  that  line  the  early 
Italian  efforts  are  most  interesting.  As  early  as  1883,  a  na- 
tional workingmen 's  accident  insurance  institution  was  or- 
ganized by  ten  savings  banks  under  encouragement  and  super- 
vision of  the  state,  with  the  result  that  the  cost  of  adminis- 
tering the  business  was  materially  reduced,  as  compared  with 
private  insurance  companies. 

The  same  results  were  obtained  by  employers'  mutual  in- 
surance associations,  though  some  of  them  formed  for  insur- 
ance against  liability  and  not  for  the  collective  form.  Thus, 
when  the  movement  for  compensation  began,  all  types  of 
insurance  institutions  were  already  known  to  exist — the  state 
institutions,  private  insurance  companies,  and  employers'  mu- 
tual insurance  institutions.  Comparatively  new  was  only  the 
principle  of  compulsion. 

But,  quite  naturally,  the  compensation  principle  has  af- 
fected accident  insurance  extremely.  Even  when  no  effort 
was  made  to  enforce  insurance  it  increased  the  amount  of  in- 
surance enormously  by  extending  the  responsibility  of  the 
employer.  It  stimulated  both  state  insurance  and  mutual 
insurance,  because  of  the  natural  desire  of  the  employer 
to  make  insurance  cheaper.  There  is  no  reason  at  all  why 
any  employer  should  object  to  compulsory  accident  insurance 
(though,  for  many  reasons,  he  may  object  to  a  compensation 
system)  unless  he  hopes  to  avoid  compensation  in  some  way, 
and,  therefore,  does  not  wish  to  pay  the  insurance  premium ; 
or  he  is  an  exceedingly  careful  employer,  and  may  reasonably 
hope  to  comply  with  the  law  at  a  lower  cost  than  the  insurance 
premium.  As  a  matter  of  historical  fact,  once  the  compensa- 


140  SOCIAL  INSURANCE 

tion  principle  was  agreed  upon,  very  little  opposition  to  state 
insurance  came  from  the  employer. 

In  regard  to  the  organization  of  insurance,  there  are  two 
lines  of  cleavage;  one  is  the  distinction  between  countries 
having  compulsory  insurance  and  countries  where  insurance 
is  optional,  and  the  other  line  of  cleavage  is  between  state  and 
private  insurance.  These  lines  naturally  do  not  coincide. 
State  insurance  may  be  optional,  as  in  Sweden,  and  compul- 
sory insurance  may  be  limited  entirely  to  private  institutions, 
as  in  Finland.  Keeping  this  in  mind,  the  following  classifica- 
tion of  countries  may  be  found  useful : l 

1.  Compulsory  Insurance. 

Two  forms  of  compulsory  insurance  are  differentiated — compulsory 
insurance  and  compulsion  to  insure  (Zwangversicherung  and  Ver- 
sicherungszwang),  one  enforcing  insurance  in  prescribed  institutions, 
the  other  enforcing  the  obligation  to  insure,  but  leaving  free  the 
choice  of  insurance  institutions. 

A.  Compulsory  insurance  in  prescribed  institutions. 

1.  In  government  institutions  with  a  monopoly  of  insurance. 

Norway,  Switzerland. 

2.  In  employers'  compulsory  mutual  associations  controlled 

by  the  state.    Austria,  Germany,  Hungary,  Luxemburg, 
Russia  (Greece  and  New  South  Wales — mining  only). 

B.  Compulsory  insurance  with  choice  of  insurance  institution. 

1.  Private  companies  or  mutual  associations  with  state  in- 

stitutions competing.    Italy,  Netherlands. 

2.  Private  companies  or  mutual  associations  without  state 

institutions  competing.     Finland. 

2.  Voluntary  Insurance. 

1.  Private  companies  or  mutual  associations  with  state  in- 

stitutions competing.     Sweden  and  France. 

2.  Private  companies  or  mutual  associations  without  state 

institutions  competing.    Belgium,  Denmark,  Great  Bri- 
tain and  her  colonies,  Spain. 

This  analysis  will  be  useful  as  a  reminder,  but  needs  fur- 
ther elucidation  before  the  comparative  advantages  of  various 
insurance  forms  may  be  discussed. 

Altogether  compulsory  insurance  is  to  be  found  in  ten  coun- 
tries (exclusive  of  Greece  and  New  South  Wales,  where  the 
law  is  a  special  one,  applying  to  mining  industry  only),  while 
insurance  is  voluntary  in  six  European  countries  and  all  Brit- 

1  Quoted  with  abridgments  from  Bulletin  of  Bureau  of  Labor  90,  for 
which  it  was  prepared  by  the  author. 


ORGANIZATION  OF  ACCIDENT  INSURANCE     141 

ish  possessions.  The  Germanic  countries  are  in  the  majority 
in  the  compulsory  list,  but  so  is  Latin  Italy  and  Slavic  Russia, 
and  while  voluntary  insurance  predominates  among  the  Roman 
countries,  it  is  also  the  principle  in  Anglo-Saxon  Great  Britain, 
Sweden,  and  Spain.  It  is  idle,  therefore,  to  base  any  dis- 
tinction upon  racial  characteristics.  It  so  happens  that  the 
countries  having  legislated  earliest  on  compensation  have  in- 
troduced compulsory  insurance  (Germany  in  1884,  Austria 
in  1887,  Norway  in  1894,  Finland  1895,  and  Italy  in  1898), 
while  the  laws  which  have  been  passed  during  the  last  fifteen 
years  are  mainly  for  optional  insurance,  as,  for  instance,  Great 
Britain  in  1897,  France  in  1898,  Spain  in  1900,  Sweden  in 
1901,  Russia  in  1903,  Belgium  in  1905,  and  also  all  the  British 
colonies. 

It  has  frequently  been  argued  by  the  opponents  of 
compulsion  that  the  historical  development  proved  a  certain 
disappointment  with  this  principle.  But  as  a  matter  of  fact, 
Netherlands  in  1901,  Luxemburg  in  1902,  Hungary  in  1907, 
Switzerland  in  1911,  and  Russia  in  1912  have  adopted  the 
compulsory  principle,  while  the  Belgian  system  is  almost  com- 
pulsory. In  addition,  compulsory  insurance  is  seriously  dis- 
cussed in  France ;  so  that  not  only  is  the  disappointment  not 
proven,  but  the  tendency  is  clearly  towards  compulsion. 

What  are  the  advantages  of  compulsory  insurance?  The 
main  advantage  to  the  injured  employee,  that  of  security  of 
payments,  was  already  mentioned,  as  well  as  the  other  method 
of  meeting  this  problem — through  a  national  guarantee  fund. 
As  the  problem  of  insurance  concerns  the  employer  mainly, 
the  advantages  of  compulsory  insurance  must  be  demon- 
strated to  him.  The  question  of  cost  evidently  does  not  come 
in  here,  because  that  depends  upon  the  method  of  insurance, 
and  not  upon  the  question  of  compulsion.  When  private 
insurance  companies  continue  to  operate  under  a  compulsory 
principle,  as  in  Italy,  there  is  no  reason  why  the  rate  should 
be  affected  by  compulsion  as  such.  The  main  advantages  are 
evidently  the  same  which  accrue  to  the  workman  from  com- 
pulsory sick-insurance — by  forcing  the  careless  employer  to 
insure,  who  would  otherwise  be  likely  to  remain  uninsured 
and  to  suffer  a  calamity  from  one  industrial  accident.  Espe- 
cially is  this  important  in  case  of  very  small  employers.  And 
in  England,  for  instance,  where  the  law  covers  "  any  employ- 


142  SOCIAL  INSURANCE 

ment,"  the  principle  of  compulsory  insurance  would  be  very 
useful,  for  instance,  to  employers  of  domestic  help. 

Inversely  it  follows  that,  with  very  large  establishments, 
the  advantages  of  compulsory  principles  are  considerably  re- 
duced. Any  one  of  our  large  industrial  corporations  or 
railroads  employs  such  a  large  number  of  men  that  they  may 
safely  rely  upon  their  own  average  experience,  and  there  is 
no  advantage  in  forcing  compulsory  insurance  with  its  addi- 
tional cost  of  administration  upon  them.  As  a  matter  of  fact, 
such  exceptions  are  made  in  several  countries  having  a  system 
of  compulsion,  as,  for  instance,  in  Italy  or  the  Netherlands, 
where  private  "  establishment  funds,"  i.e.,  funds  existing  for 
employees  of  one  employer,  or  co-operative  establishment 
funds  are  permitted  to  take  the  place  of  insurance. 

Another  important  problem  is  that  of  comparative  advan- 
tages of  various  insurance  institutions.  As  was  shown  from 
the  preceding  analysis,  there  are  three  types  of  insurance  in- 
stitutions: the  state  insurance  fund,  the  employers'  mutual 
institution,  and  the  private  insurance  company.  The  economic 
organization  of  these  three  types  must  be  essentially  different. 
Perhaps  it  is  best  to  begin  with  the  private  stock  insurance 
company,  as  the  insurance  institution  with  which  the  average 
American  is  most  familiar. 

In  the  introductory  pages  social  insurance  was  described 
as  a  form  of  insurance  which  did  not  aim  at  profit.  Private 
or  stock  accident  insurance  companies  (known  in  the  United 
States  as  casualty  insurance  companies)  do  operate  for 
profit.  As  accident  insurance  of  this  form  grows  out  of  com- 
pensation, and  compensation  out  of  employer's  liability,  the 
profits  are  derived  from  the  employer  and  not  the  insured 
employee.  In  this  case,  it  is  not  the  form  or  organization 
of  insurance  but  its  object  that  entitled  it  to  a  place  in  the 
field  of  social  insurance. 

The  essential  feature  of  private  insurance  is  not  only  that 
it  operates  for  profit.  All  insurance,  as  was  explained,  repre- 
sents an  effort  at  distribution  of  loss.  But  private  insurance 
must  necessarily  be  a  fixed  premium  insurance,  i.e.,  besides 
the  distribution  of  loss  it  furnishes  a  complete  guarantee 
against  the  risk  by  assuming  it  itself.  But  as  the  total  loss 
is  subject  to  fluctuations,  the  individual  share  cannot  be  defi- 
nitely known  in  advance.  The  private  insurance  company 


ORGANIZATION  OF  ACCIDENT  INSURANCE     143 

in  closing  an  insurance  contract,  at  a  definite  fixed  premium, 
assumes  the  entire  risk  of  these  fluctuations.  If  the  actual 
losses  should  exceed  the  expected  ratio,  itself,  and  not  the 
insurer,  suffers  therefrom.  By  thus  furnishing  this  absolute 
guarantee,  the  private  insurance  company  is  performing  a 
definite  economic  service,  for  which  it  may  endeavor  to  charge 
as  much  as  competitive  conditions  will  allow. 

Contrary  to  the  popular  impression,  there  is  a  good  deal 
more  similarity  between  private  stock  company  insurance  and 
straight  state  insurance  than  between  state  insurance  and 
mutual  insurance.  This  similarity  is  found  in  the  fixed 
premium  and  the  absolute  guarantee  against  losses  sold  for 
a  definite  price.  There  is  this  large  difference,  however:  the 
state  assumes  the  function  of  the  insurance  company,  and  in 
doing  so  does  not  contemplate  the  possibility  of  profits.  It 
can,  therefore  (theoretically,  anyway),  offer  a  lower  insurance 
rate.  Contrary  to  the  popular  impression,  such  state  insurance 
against  industrial  accidents  is  not  as  widespread  in  Europe 
as  is  sometimes  assumed.  The  countries  having  state  accident 
insurance  institutions  are:  Norway,  Italy,  Netherlands, 
Sweden,  and  France,  and  they  are  placed  somewhat  in  the 
order  of  importance  of  the  respective  state  insurance  institu- 
tions. 

Only  in  Norway  the  state  has  the  monopoly  of  this  line  of 
insurance.  In  Italy  and  Netherlands  it  competes  with  private 
insurance  companies  and  mutual  employers'  associations  un- 
der a  system  which  demands  insurance,  but  leaves  the  choice 
of  the  insurance  carrier  free.  Finally,  in  Sweden  and  France, 
the  same  competitive  condition  obtains  in  absence  of  any 
compulsion  to  insure. 

From  the  point  of  view  of  technical  insurance,  the  organiza- 
tion of  a  mutual  association  is  very  much  different.  A  pre- 
liminary rate  of  premium  may  be  quoted  by  the  association  to 
the  individual  employer,  but  no  guarantee  is  furnished  that 
this  will  constitute  the  entire  charge.  The  distribution  of  the 
loss  to  be  incurred  is  here  the  essential  feature.  Beyond  this 
the  association  does  not  assume  the  risk  of  losses  larger  than 
were  expected,  and,  on  the  other  hand,  it  does  not  intend  to 
claim  the  profit  from  the  losses  being  lower  than  expected. 
The  member  of  the  association  does  not  purchase  complete 
security  at  a  definite  price;  this  may  be  a  disadvantage,  but 


144  SOCIAL  INSURANCE 

the  advantage  is  that  the  industry  as  a  whole  does  not  pay 
the  price  for  this  security,  while  the  risk  remaining,  because 
of  the  collective  responsibility,  is  not  great. 

To  be  quite  exact,  in  a  mutual  association,  the  individual 
member  does  not  pay  the  premium  in  advance — though  he  may 
contribute  a  certain  amount  of  cash  for  the  current  expenses. 
Losses  are  distributed  after  they  occur.  It  would  seem,  there- 
fore, that  while  a  "  fixed  premium  "  insurance  institution, 
whether  a  private  stock  concern  or  a  state  insurance  depart- 
ment, must  face  the  possibility  of  a  loss  and  deficit,  a  mutual 
association  is  safeguarded  from  this  in  the  very  nature  of 
things,  for  the  losses  are  distributed  after  they  occur.  In 
actual  practice  the  situation  is  not  at  all  as  simple  as  that, 
however.  For  in  very  many  cases  of  accidental  injuries  the 
exact  amount  of  loss  cannot  be  ascertained  until  a  long  time 
after  the  accident  has  occurred. 

The  results  of  the  accident  may  not  be  certain  for  a  long 
time.  One  injured  may  recover  from  an  injury  seemingly 
fatal,  while  another  man's  injury  may  seem  light  in  the  begin- 
ning and  finally  terminate  fatally.  In  cases  of  permanent 
injury  it  is  often  impossible  to  render  final  judgment  as  to  the 
result  for  years ;  and  changes  may  occur  in  the  degree  of  dis- 
ability both  for  the  better  or  for  the  worse.  And  in  addition, 
where  the  pension  system  of  compensation  rather  than  the 
lump-sum  system  prevails,  the  cost  of  an  injury  may  be  a 
doubtful  quantity,  even  after  the  nature  and  gravity  of  the 
injury  have  been  definitely  determined. 

The  essential  feature  of  the  mutual  insurance  method,  there- 
fore, must  be  the  preservation  of  this  collective  responsibility 
for  a  long  period  of  time.  There  are  two  methods  of  mutual 
insurance — the  compulsory  and  the  voluntary.  In  all  coun- 
tries where  there  is  no  compulsory  system  of  insurance,  volun- 
tary mutual  associations  may  be  found  (Belgium,  Denmark, 
Great  Britain,  Russia,la  France,  Spain,  and  Sweden).  But 
in  addition  voluntary  mutual  associations  are  also  found  in 
competition  with  the  other  two  forms  of  accident  insurance, 
where  there  is  compulsory  insurance  with  choice  of  insurance 
institutions,  as  in  Italy,  Finland,  Netherlands. 

The  same  problems  confront  the  organization  of  mutual 
employers'  associations  in  all  these  countries.  Not  only  must 

*  Before  the  introduction  of  the  compulsory  system  junder  the  law  of  1913. 


ORGANIZATION  OF  ACCIDENT  INSURANCE     145 

the  interests  of  the  injured  workmen  be  safeguarded  against 
the  possible  insolvency  of  the  mutual  association  by  exacting 
the  collective  responsibility  of  the  members  of  the  associa- 
tion, but  the  association  itself  must  be  protected  against  its 
dishonest,  delinquent,  or  insolvent  members.  When  one  of 
them  decides  to  step  out  of  the  association,  the  latter  must  not 
be  unjustly  saddled  by  his  liabilities,  and  there  must  be  an 
equitable  method  of  determining  his  share  of  the  liabilities 
incurred  during  his  membership.  Equally,  a  new  member 
must  be  assured  that  in  joining  an  existing  association,  he 
does  not  assume  any  responsibility  for  losses  sustained  during 
the  preceding  existence  of  the  association.  The  achievement 
of  these  objects  does  not  present  any  unsurmountable  difficul- 
ties. The  account  of  each  year 's  losses  is  kept  separately  and  a 
member's  responsibility  does  not  expire  until  the  affairs  of 
that  year  are  altogether  wound  up.  To  facilitate  and  expedite 
such  winding  up  of  the  affairs,  the  law  regulating  these  em- 
ployers' associations  in  France,  for  instance,  requires  that 
when  a  life-pension  is  granted  by  the  employers'  association 
to  an  injured  workman  or  his  dependents,  corresponding  an- 
nuities are  purchased  for  the  benefit  of  the  claimant,  so  that, 
as  far  as  the  association  is  concerned,  the  pensions  are  con- 
verted into  lump  sums,  though  the  beneficiary  continues  to 
receive  a  pension. 

The  situation  is  very  much  different  when  the  employers' 
association  itself  is  compulsory.  The  employer  cannot  leave 
the  association  at  will,  and  his  joining  it  is  not  a  matter  of 
free  choice,  but  of  obligation.  There  is,  therefore,  less  need 
to  keep  track  of  the  proper  balance  between  the  cost  of  losses 
sustained  during  a  certain  period  and  premiums  collected 
for  the  same  period. 

Herein  lies  the  very  important  difference  between  voluntary 
mutual  employers'  associations  and  compulsory  associations 
such  as  exist  in  Austria,  Germany,  Hungary,  Luxemburg, 
Russia,  and  Switzerland.  The  German  and  Austrian  accident 
insurance  systems  have  often  been  spoken  of  in  this  country 
as  systems  of  state  insurance.  This  is  not  altogether  accurate, 
for  the  state  does  not  assume  directly  any  financial  respon- 
sibility, does  not  collect  the  premiums  nor  pay  the  losses,  nor 
guarantee  the  deficit.  But  the  degree  of  control  and  super- 
vision in  addition  to  the  compulsion  is  such  as  to  distinguish 


146  SOCIAL  INSURANCE 

it  from  the  voluntary  mutual  associations.  Nevertheless  the 
direct  administration  of  the  affairs  of  these  associations  lies  in 
the  hands  of  the  employers  themselves. 

There  is  a  material  difference  in  the  methods  of  organiza- 
tion of  the  German  and  Austrian  systems :  the  first  having  the 
so-called  industrial  and  the  latter  the  territorial  organization. 
That  means  that  in  Germany  employers  are  joined  together 
according  to  the  branch  of  industry,  and  in  Austria  according 
to  location. 

It  is  still  an  open  question  which  of  these  two  systems  is 
the  preferable  one.  In  neither  country  is  the  system  carried 
out  absolutely.  While  most  associations  in  Germany  cover  a 
certain  branch  of  industry  for  the  whole  country,  yet  in  the 
larger  industries,  such  as  iron  and  steel,  textiles,  building 
trades,  there  are  several  territorial  organizations.  Altogether 
there  are  in  Germany  66  industrial  and  48  agricultural  asso- 
ciations. In  Austria,  on  the  other  hand,  there  are  seven 
territorial  institutions,  and  special  industrial  ones  for  the 
railways  and  mines.  In  Hungary  there  are  only  two  large 
employers'  associations,  one  for  Hungary  proper  and  one 
for  Croatia,  Slavonia,  these  approaching  nearer  a  system  of 
state  insurance.  Luxemburg  and  also  Switzerland  have  only 
one  institution  each,  while  Russia  through  its  recent  act  has 
adopted  the  Austrian  territorial  system. 

The  advantages  of  either  of  the  two  systems  are  obvious; 
somewhat  less  so  the  disadvantages.  An  industrial  system 
combining  employers  in  the  same  or  related  lines  of  industry, 
has  the  advantage  of  a  certain  uniformity  of  risks;  and  the 
employers  administering  such  an  association  are  better  able 
to  adjust  rates  and  also — a  very  important  consideration — to 
suggest  methods  for  accident  prevention.  On  the  other  hand, 
the  difficulties  of  control  and  adjustment  of  claims  at  great 
distances  must  be  a  disadvantage. 

There  is  also  another  very  important  difference  in  the  or- 
ganization of  the  German  and  Austrian  systems. 

We  have  already  mentioned  all  the  difficulties  of  computing 
a  proper  premium  rate  which  a  mutual  association  must  face. 
The  German  system  has  solved  this  difficulty  by  waiving  it 
aside  and  declining  to  determine  the  actual  cost  of  all  acci- 
dents. Instead,  it  assesses  upon  the  insured  employers  only 
the  amount  of  payments  made  during  the  year.  As  the  larger 


ORGANIZATION  OF  ACCIDENT  INSURANCE     147 

share  of  the  expense  is  represented  by  cases  of  permanent 
disability  and  death,  for  which  payments  must  be  made  for  a 
long  period  of  years,  this  results  in  very  low  charges  in  the 
beginning,  which  rapidly  increase  as  time  goes  on.  During 
the  first  year  only  that  year's  accidents  are  paid  for.  During 
the  second  year  the  payments  on  the  first  year's  accidents  are 
continued,  and  the  second  year's  accidents  are  added.  The 
system  is  continued,  and  for  some  years  the  number  of  cases 
to  be  compensated  is  growing.  Gradually,  however,  payments 
on  the  older  cases  will  cease,  because  of  deaths  or  other  rea- 
sons. Thus  the  number  will  grow  until  a  stationary  point 
must  be  reached,  when  about  as  many  old  cases  will  be  annu- 
ally taken  off  the  lists  as  there  will  be  new  ones  added.  To 
prevent  a  possibility  of  violent  fluctuations,  a  small  reserve 
is  accumulated  in  addition  to  be  used  for  emergency  pay- 
ments. But  the  system  intentionally  leaves  the  association 
insolvent  if  at  any  moment  its  affairs  were  to  be  wound  up, 
i.e.,  at  that  moment  its  reserves  would  not  be  sufficient  to  cover 
the  cost  of  payments  to  be  made  in  the  future  for  injuries 
sustained  in  the  past. 

This  condition  is  sometimes  mentioned  as  a  criticism  of  the 
German  system,  when  the  fact  is  disregarded  that  the  condi- 
tion is  intentional.  It  simply  means  that  in  the  past,  especially 
in  the  earlier  years,  the  employers  have  not  paid  to  the  associa- 
tion as  much  as  would  be  required  to  keep  it  solvent.  A 
sufficient  reserve  was  not  provided,  but  the  membership  in 
the  association  being  compulsory,  such  a  reserve  is  not  neces- 
sary, for  compulsory  membership  carries  with  it  compulsory 
collective  responsibility.  By  this  method,  the  increase  in  cost 
of  compensation  was  gradual  at  the  time  the  system  was  in- 
troduced, and  thus  industry  was  saved  from  a  financial  shock, 
while  the  interests  of  the  injured  were  not  in  the  least  sacri- 
ficed. And  when  one  hears  in  the  United  States  such  strong 
objections  to  the  "  saddling  of  the  high  cost  of  compensation  " 
upon  industry,  the  advantages  of  the  German  system  become 
apparent. 

It  is  often  argued  that  while  this  method  gave  a  financial 
advantage  to  the  existing  establishments,  it  was  unfair  to  the 
undertakings  started  subsequently,  for  in  joining  an  associa- 
tion an  employer  is  at  once  saddled  with  the  sins  of  his 
predecessors — the  cost  of  accumulated  injuries  drawing  pen- 


148  SOCIAL  INSUEANCE 

sions  now.  This  argument  is  evidently  due  to  a  misunder- 
standing of  the  actuarial  conditions,  for  under  this  system 
of  assessment,  the  cost  never  rises  above  what  it  would  be 
under  a  system  of  full  premiums. 

The  Austrian  system,  on  the  contrary,  was  built  or  sup- 
posed to  be  built  upon  the  system  of  full  premiums,  i.e.,  that 
the  premiums  for  any  one  year  should  cover  the  entire  cost 
of  injuries  occurring  during  that  year.  But  in  the  end  the  dif- 
ference between  the  Austrian  and  German  systems  was  ma- 
terially obliterated.  Either  intentionally  or  otherwise,  the 
premiums  of  the  Austrian  association  were  never  high  enough 
to  meet  this  demand.  A  deficit,  therefore,  gradually  accumu- 
lated when  all  the  outstanding  obligations  of  the  association 
are  considered.  To  cover  up  this  deficit  would  require  ex- 
cessively high  premiums  at  present,  and  as  the  employers 
themselves  administer  the  fund,  they  are  loath  to  tax  them- 
selves to  cover  up  this  deficit.  But  as  there  is  no  prospect  of 
any  one  of  these  associations  winding  up  its  affairs,  the 
existence  of  this  deficit  does  not  present  any  danger. 

With  so  many  types  of  accident  insurance  institutions  in 
the  field,  the  natural  question  arises,  which  is  the  most  prefer- 
able type?  Many  arguments  for  and  against  each  one  of 
these  types  have  been  mentioned.  But  before  these  are  ana- 
lyzed, it  is  worth  while  making  an  effort  to  determine  which 
represents  the  predominating  tendency  in  Europe. 

Naturally,  where  one  type  of  insurance  institution  is  recog- 
nized and  enforced,  there  is  no  opportunity  for  different 
types  to  work  out  their  own  salvation.  But  in  a  number 
of  countries,  different  types  work  side  by  side,  and  the  experi- 
ence of  these  countries  must  be  instructive. 

In  Italy,  Netherlands,  France,  and  Sweden,  state  insurance 
institutions  compete  with  private  and  mutual  institutions. 
The  Italian  state  insurance  institution  has  operated  since  1883, 
i.e.,  for  fifteen  years  before  the  compensation  law  went  into 
effect,  and  has  tremendous  popularity.  In  1898  160,000 
workingmen  were  insured  in  that  institution,  and  in  1906  over 
400,000.  Nevertheless  private  insurance  companies  still  do 
a  very  large  volume  of  business,  and  mutual  associations  are 
growing.  In  1899  the  national  institution  compensated  20.8$ 
of  all  accidents,  the  private  companies  71.2$,  and  the  mutual 
8$.  In  1905  the  proportions  were  36.8$,  43.9$,  and  19.3$. 


ORGANIZATION  OF  ACCIDENT  INSURANCE     149 

In  Netherlands  the  Royal  Insurance  Bank  has  a  double 
function:  it  conducts  accident  insurance  and  also  supervises 
all  other  accident  insurance  companies.  At  present  it  claims 
about  one-third  of  the  total  business  without  any  pronounced 
tendency  to  increase  its  share.  In  Sweden  the  state  insurance 
institute  covered  about  24$  of  all  insured  workmen,  and  of  the 
remainder,  private  companies  some  43$,  and  the  mutuals  33$. 
In  France  the  share  of  the  state  institution  is  an  extremely 
small  one  because  of  a  peculiar  provision  of  the  law  which 
permits  it  to  insure  only  against  fatal  and  permanent  dis- 
ability injuries,  but  not  those  of  temporary  disability.  This 
incomplete  protection  is  naturally  very  inconvenient  to  the 
employer,  requiring  double  insurance.  Therefore,  the  institu- 
tion in  1901  insured  only  0.4$.  But  in  a  decade  the  amount  has 
increased  five-fold,  and  proportionately  increased  to  over  1$. 
Thus,  everywhere  the  activity  of  the  state  insurance  institu- 
tion is  growing,  though  at  a  rate  that  is  not  at  all  staggering. 
On  the  contrary,  the  increase  in  the  activity  of  the  mutual  em- 
ployers'  associations  is  very  noticeable  in  all  countries  where 
they  are  freely  competing  with  private  companies.  In  France 
the  mutuals  (known  as  guarantee  syndicates)  have  increased 
their  share  from  3.2$  in  1901  to  7.9$  in  1907.  In  Belgium 
the  mutuals,  though  the  act  is  a  very  recent  one,  claimed  over 
35$  of  the  business.  In  Denmark  the  proportion  in  1907 
was  some  28$.  In  Russia  mutuals  have  well-nigh  driven 
private  insurance  companies  out  of  the  field.  The  conclusion 
seems  to  be  justified  that  everywhere  where  the  three  forms 
of  insurance  institutions  compete,  both  the  state  institutions 
and  the  mutual  associations  grow  at  the  expense  of  private 
insurance  companies,  but  the  rate  of  such  growth  is  not  espe- 
cially fast,  and  private  accident  insurance  is  still  important 
in  almost  all  countries  in  which  it  is  permitted. 

These  being  the  facts,  what  are  the  arguments  in  favor 
of  the  various  insurance  institutions? 

Assuming  that  all  insurance  institutions  must  abide  by  the 
compensation  scales,  the  comparative  advantages  of  different 
insurance  institutions  must  express  themselves: 

(1)  From  the  point  of  view  of  the  employer  in  the  com- 
parative cost  of  insurance. 

(2)  From  the  point  of  view  of  the  insured  employee  in 
comparative  speed  and  fairness  of  adjustment  of  claims. 


150  SOCIAL  INSURANCE 

(3)  From  a  general  point  of  view  in  the  comparative  suc- 
cess of  eliminating  unnecessary  litigation,  and  in  the  secondary 
effect  of  accident  prevention. 

A  state  institution  evidently  eliminates  the  loading  for 
profits  and  for  the  procuring  of  business — the  agent 's  commis- 
sion. There  is  perhaps  no  sound  reason  to  assume  that  the 
cost  of  administration,  as  such,  must  be  very  much  lower  under 
a  state  insurance  system.  Salaries  for  high  administrative 
work  would  possibly  be  lower  in  a  state  insurance  system. 
As  against  it  is  often  quoted  the  general  costliness  of,  and 
lack  of  efficiency  of,  governmental  work — an  argument  of 
greater  convincing  power,  perhaps,  in  the  United  States  than 
in  Europe. 

Another  argument  in  favor  of  a  state  institution  which 
greatly  appeals  to  the  employers, — who  ordinarily  do  not 
grow  enthusiastic  in  favor  of  extension  of  the  economic  func- 
tions of  the  government, — is  the  possibility  of  shifting  part 
of  the  actual  cost  from  the  employers  upon  the  general  state 
treasury,  for  under  state  insurance  either  part  or  the  whole 
of  the  cost  of  administration  may  fall  upon  the  general  treas- 
ury— such  as  the  rent,  the  stationery,  the  postage,  and  even  the 
salaries.  Very  seldom,  indeed,  in  any  industrial  or  commercial 
undertaking  of  the  government  are  these  expenditures  taken 
careful  account  of  in  determining  the  cost  of  the  governmental 
service.  Moreover,  most  state  insurance  institutions  derive 
an  open  subsidy  from  the  state,  especially  as  far  as  the  cost 
of  administration  is  concerned.  Thus,  the  Italian  fund  may 
cover  its  administrative  expenses  by  means  of  the  interest  on 
a  fairly  large  guarantee  fund.  In  Sweden,  and  also  in  France, 
the  entire  expenses  of  administration  are  borne  by  the  state. 
The  State  Insurance  Bank  of  Holland  has  half  of  its  ad- 
ministrative expenses  paid  by  the  state.  In  addition,  the 
state  subsidy  may  take  the  more  serious  form  of  a  deficit,  the 
rates  of  insurance  not  being  sufficient  to  cover  the  cost  or  the 
amount  of  the  losses.  But  while  these  two  possibilities  are 
classified  with  arguments  in  favor  of  state  insurance  from 
the  point  of  view  of  the  insured  employers,  they  are  also 
often  quoted  against  state  insurance  by  its  opponents. 

It  is  an  open  question  whether  in  equity  the  state  should  or 
should  not  thus  assume  a  part  of  the  cost  of  accident  com- 
pensation. On  one  hand,  it  may  be  reasoned  that  having 


ORGANIZATION  OF  ACCIDENT  INSURANCE     151 

asserted  the  social  value  of  accident  compensation,  the  state 
may  properly  contribute  its  share  to  the  cost  as  it  contributes 
its  share  to  the  cost  of  many  other  socially  important  serv- 
ices. It  is  further  argued  that  the  state  can  well  afford  to 
bear  a  share  of  this  burden,  because  a  compensation  system 
relieves  a  considerable  portion  of  the  cost  of  liability  litigation. 
On  the  other  hand,  if  the  principle  is  accepted  that  the  cost 
of  compensation  is  a  necessary  part  of  the  cost  of  production 
of  goods,  the  state  must  not  extend  such  veiled  subsidies  to 
various  producing  interests,  and  thus  breed  parasitic  indus- 
tries. 

In  any  case  it  is  quite  certain  that  if  the  state  is  willing  to 
grant  a  general  subsidy  it  should  be  a  definite  one,  and  not 
subject  to  the  uncertainties  of  unsatisfactory  rate-making. 
However,  there  is  no  theoretical  reason  why  the  state  cannot 
enforce  a  proper  rate.  The  experience  of  the  Norwegian  in- 
stitution is  usually  quoted,  when  the  state  was  forced  to  meet 
a  heavy  deficit.  But  this  is  easily  explained  by  the  peculiar 
fact  that  in  Norway  the  rates  are  established  by  law,  by  com- 
plex parliamentary  action,  and  cannot  be  changed  in  any  other 
way — the  revision  having  taken  place  once  in  three  years.  All 
such  effort  to  establish  a  specific  rate  by  law  must  prove  a 
failure.  The  statistics  of  accidents  may  be  unsatisfactory,  the 
very  frequency  of  accidents  is  subject  to  important  changes, 
and  the  differences  between  individual  establishments  are  so 
great,  that  any  law-bound,  iron-clad  rates  must  prove  unsatis- 
factory. 

Granted  a  lower  cost  of  administration,  and  absence  of  the 
elements  of  commission  and  profit,  the  state  insurance  should 
be  able  to  quote  a  cheaper  rate. 

But  a  cheaper  rate  does  not  decide  the  problem,  except 
as  far  as  the  employer  is  concerned.  There  is  also  the  other 
side, — that  of  the  injured  workman  or  his  dependents.  Under 
which  system  are  his  chances  best  for  getting  justice?  Evi- 
dently that  system  will  be  best  from  his  point  of  view  which 
does  not  put  the  decision  into  the  hands  of  persons  interested 
in  reducing  the  compensation  to  a  minimum.  In  all  systems 
of  insurance  or  compensation,  the  proper  safeguards  must 
necessarily  be  provided  in  the  nature  of  arbitration  commit- 
tees, the  right  of  appeal  to  higher  jurisdiction,  and  govern- 
mental supervision  generally.  The  private  insurance  com- 


152  SOCIAL  INSURANCE 

pany  existing  for  profits  and  profiting  directly  through 
reducing  compensation,  would  naturally  have  to  face  this 
objection  from  the  injured  workman's  point  of  view,  while 
a  state  insurance  institution  might  be  supposed  to  be  entirely 
free  from  this  motive,  and,  therefore,  be  more  favorable  to  the 
claimant. 

But  how  much  this  argument  may  depend  upon  a  point  of 
view  is  well  illustrated  by  the  fact  that  when  the  Belgian  law 
permitted  the  manager  of  an  Old  Age  Pension  Fund  (a 
national  institution)  to  write  accident  insurance,  the  manager 
of  the  Fund  declined  to  undertake  this  line  of  business  on  the 
ground  that  the  settlement  of  accident  claims  will  naturally 
cause  a  good  deal  of  friction  between  the  workmen  and  the 
state  institution,  and  jeopardize  its  popularity  so  necessary  to 
successful  activity  in  other  lines. 

In  refutation  of  both  these  arguments,  which  seem  to  favor 
state  insurance  from  the  point  of  view  of  both  employer  and 
employee, ' '  graft  ' '  is  often  mentioned.  It  is  claimed  that  dis- 
honest administration  may  either  favor  one  side  at  the  expense 
of  the  other,  or  possibly  both  sides  at  the  expense  of  society 
at  large ;  that  undue  considerations,  whether  political  or  those 
of  individual  corruption,  may  influence  the  conscious  under- 
valuation of  premium  so  as  to  create  a  deficit  by  favoring  cer- 
tain employers ;  and  that  by  similar  political  considerations  or 
corrupt  influences,  the  claimants  may  be  unduly  favored,  and 
thus  the  cost  of  compensation  to  society  is  increased. 

It  is  difficult  to  measure  the  strength  of  such  an  argument 
further  than  to  say  that  a  proper  system  of  civil  service  would 
seem  to  offer  a  satisfactory  remedy  in  this,  as  in  other  cases  of 
threatening  corruption  of  public  officials. 

As  the  central  aim  of  accident  insurance  is  the  distribution 
of  loss  of  one  employer  over  the  entire  industry,  the  employers ' 
mutual  association  appears  to  be  the  logical  form  of  organiza- 
tion. Not  only  are  profits  eliminated,  but  the  cost  of  adminis- 
tration must  necessarily  be  low  because  a  good  share  of  the 
work  is  done  gratuitously  by  co-operative  effort. 

From  the  point  of  view  of  the  claimant,  however,  the  fact 
that  these  mutual  associations  are  entirely  managed  by  the 
employers  may  be  found  objectionable.  Not  only  very  strict 
state  supervision  is  required,  but  also  some  representation  of 
the  workmen's  interest.  Thus,  we  find  that  in  the  new  Swiss 


ORGANIZATION  OF  ACCIDENT  INSURANCE     153 

institution,  which  stands  half-way  between  an  employers'  and 
a  state  institution,  the  workmen  have  sixteen  out  of  the  fifty 
members  of  the  administrative  council,  while  the  employers 
have  an  equal  number,  and  eighteen  represent  the  state. 
Nevertheless,  in  view  of  the  admitted  advantages  of  both  the 
state  institutions  and  the  mutual  associations  over  private 
insurance  companies  in  the  matter  of  the  insurance  rates  and 
premiums,  the  interesting  question  remains  why  neither  of 
them  has  developed  faster  than  they  did  in  those  countries 
where  all  forms  of  institution  operate  in  competition  with  each 
other,  and  why  do  private  insurance  companies  still  continue 
to  claim  the  lion's  share  of  accident  insurance  in  most  coun- 
tries ? 

One  reason  as  against  the  mutual  association  may  be  found 
in  the  greater  liability  which  the  organization  of  mutual  com- 
panies presupposes.  What  a  compulsory  mutual  employers '  as- 
sociation meets  without  any  difficulty,  presents  a  rather  com- 
plicated problem  for  a  voluntary  mutual  association.  And  the 
average  employer,  especially  in  the  lighter  industries,  where  the 
entire  cost  of  accident  compensation  does  not  represent  a  very 
important  element  of  the  cost  of  production,  often  prefers  a 
contract  with  a  private  insurance  company,  under  which  he  is 
certain  of  the  cost  of  accident  insurance,  and  is  guaranteed 
against  possible  additional  assessments,  even  if,  on  the  whole, 
he  is  forced  to  pay  a  little  more  for  this  security. 

But  in  addition,  there  is  another  reason  which  operates 
with  special  strength  against  state  institutions.  A  private 
insurance  concern  can  be  managed  a  great  deal  less  rigidly 
than  a  state  institution,  especially  in  the  matter  of  rates. 
The  premiums  or  rates  of  state  institutions  are  usually  rigid, 
strictly  defined,  and  published.  In  some  cases  they  can  be 
changed  only  by  legislative  action,  and  they  are  uniform  for 
all  establishments  producing  a  certain  article. 

Now,  while  the  accident  rate  does  depend  upon  the  branch 
of  industry,  nevertheless  the  accident  rate  or  the  physical 
hazard  (i.e.,  the  probability  of  accidents  occurring)  varies 
greatly  from  one  establishment  to  another.  By  skilful  under- 
writing, an  experienced  accident  insurance  company  may 
select  the  "  best  risks,"  as  the  saying  goes,  by  underbidding 
the  state  insurance  institution,  leaving  to  the  latter  the  worst 
risks.  As  a  matter  of  fact,  this  actually  happens  in  all  coun- 


154  SOCIAL  INSURANCE 

tries  where  private  and  state  institutions  compete,  and  the 
state  institution  is  usually  prohibited  from  refusing  any  risk. 

This  selection  of  risk  against  the  state  institution  has  been 
advanced  as  an  argument  against  permitting  private  companies 
to  operate  in  competition  with  public  insurance  institutions. 
It  was  claimed  that  the  latter  cannot  be  successful  unless  such 
selection  of  risks  was  stopped.  But  this  seems  to  be  an  admis- 
sion that  good  risks  must  be  forced  into  a  form  of  insurance 
which  will  be  more  costly  to  them  than  their  hazard  makes 
necessary.  The  remedy  would  seem  to  be  rather  in  another 
direction — that  state  or  mutual  institutions  should  be  managed 
less  rigidly,  with  a  certain  degree  of  underwriting  skill,  which 
would  permit  an  adjustment  of  premiums  to  the  actual  con- 
ditions, in  a  way  in  which  premiums  are  adjusted  in  fire  in- 
surance, when  every  detail  of  construction,  the  presence  or 
absence  of  every  fire  preventive,  influences  the  rate  upward  or 
downward. 

To  sum  up:  Compulsory  insurance  is  an  important  prin- 
ciple, unless  some  other  method  of  state  guarantee  is  provided. 
Even  then  undertakings  of  a  certain  size  and  a  certain  degree 
of  financial  stability  may  be  freed  from  the  insurance  obliga- 
tion. The  form  of  insurance  institution  is  much  less  impor- 
tant. State  and  mutual  institutions  have  certain  advantages, 
and  there  is  no  reason  why  they  cannot  be  efficiently  managed. 
But  provided  a  proper  system  of  social  control  over  claim 
adjustments  is  maintained,  there  is  no  danger  in  leaving  the 
solution  of  this  problem  to  competition.  Compulsory  mutual 
associations  of  the  German  type  have  a  certain  advantage, 
primarily  in  the  possibility  of  smoothing  the  transitory  stage. 
But  it  must  always  be  borne  in  mind  that  not  the  form  of 
insurance,  but  its  substance — the  amount  of  insurance  granted 
— that  is  essential  from  the  point  of  view  of  the  wage-worker. 


CHAPTER  X 
THE  AMERICAN  COMPENSATION  MOVEMENT 

UNTIL  four  or  five  years  ago,  the  study  of  social  insurance,  in 
the  proper  meaning  of  the  word  (that  is,  insurance  of  work- 
ingmen  as  influenced  by  social  or  governmental  action),  could 
well  afford  entirely  to  disregard  conditions  in  the  United 
States. 

Within  the  last  four  years,  however,  the  situation  has  ma- 
terially changed,  at  least  as  far  as  one  branch,  that  of  accident 
compensation  and  insurance,  is  concerned.  The  results  accom- 
plished during  1910-1913  were  very  material.  About  twenty- 
five  states  have  already  legislated  on  the  subject  in  some  way 
or  other,  and  in  many  others  state  legislative  action  is  seri- 
ously contemplated. 

The  movement  has  been  so  unexpectedly  rapid,  even  for  its 
most  urgent  supporters,  that  it  interfered  with  the  critical 
attitude  towards  the  channels  it  had  taken.  Its  study  is  made 
exceedingly  difficult  by  our  political  organization.  In  any 
other  large  industrial  country  we  have  only  one  historical  path 
to  follow,  and  the  logical  sequence  of  legislative  projects, 
actual  laws,  and  their  results  may  be  studied  with  comparative 
ease.  As  against  such  a  study  in  Great  Britain  or  Germany, 
we  are  immediately  confronted  in  the  United  States  by  fifty 
different  historical  currents,  influencing  each  other,  but  yet 
largely  independent  of  one  another ;  and  the  technical  difficul- 
ties of  a  comparative  study  are  enormous. 

A  comparative  analysis  of  the  situation  in  Europe  required 
the  study  of  only  fifteen  acts.  We  have  already  nearly  twice 
as  many  in  the  United  States,  yet  we  are  only  in  the  beginning 
of  the  movement.  Another  difficulty  is  that  we  are  in  the 
very  midst  of  it,  and  historical  perspective  is  impossible.  The 
most  recent  sources  of  information  are  out  of  date  before  they 
leave  the  pressroom,  and  an  independent  effort  to  follow  all 
that  is  going  on  in  fifty  legislative  chambers  is  practically 
beyond  the  possibility  of  any  individual.  There  will,  there- 

155 


156  SOCIAL  INSURANCE 

fore,  be  no  guarantee  of  absolute  accuracy  in  the  discussions 
which  follow  as  far  as  the  development  of  the  last  two  or 
three  months  is  concerned. 

Before  the  results  can  be  subjected  to  a  critical  analysis, 
the  historical  development  of  the  movement  must  be  briefly 
traced,  so  as  to  understand  both  the  reasons  for  the  long  delay 
and  for  the  sudden  legislative  activity  of  the  last  few  years. 

For  a  good  many  years  it  was  tacitly  assumed,  both  by 
students  of  economics  and  the  workingmen  themselves,  that 
the  strengthening  of  liability  conditions  was  the  only  way  in 
which  an  American  solution  to  the  problem  could  be  found, 
and  all  suggestions  for  a  radical  change  along  lines  tried  in 
Europe  were  impatiently  discarded,  either  because  of  igno- 
rance of  European  conditions,  or  because  of  a  childish  convic- 
tion that  there  was  nothing  we  could  learn  from  Europe. 

Curiously  enough,  the  first  feeble  efforts  to  profit  by  Euro- 
pean experience  came  from  those  students  of  economics  who 
were  connected  in  some  capacity  with  government  institutions, 
and  not  the  academic  economists,  who  were  deep  in  economic 
theory,  and  were  then  out  of  touch  with  the  practical  problems 
of  industrial  life. 

In  1893,  the  U.  S.  Bureau  of  Labor  published  a  com- 
prehensive study  of  workingmen 's  insurance  in  Germany,  by 
Dr.  John  Graham  Brooks.  The  study  was  naturally  limited 
to  that  one  country,  because  the  movement  beyond  its  boun- 
daries was  very  limited,  even  in  Europe.  The  study  failed  to 
attract  very  much  attention  from  the  public  at  large,  or  even 
from  students  of  economics.  Five  years  later  the  first  general 
study  of  workingmen 's  insurance  was  made  by  Dr.  W.  F. 
Willoughby,  also  connected  with  the  Bureau  of  Labor,  and  not- 
withstanding its  very  elementary  nature,  it  long  remained  the 
only  authoritative  work  on  the  subject  in  English.  The  fact 
that  there  was  never  a  demand  for  a  second  edition  of  that 
book  indicates  the  degree  of  interest  displayed  by  the  Amer- 
ican students  toward  the  subject. 

In  1899  the  New  York  State  Bureau  of  Labor  published  a 
more  comprehensive  study,  devoted  entirely  to  the  problem 
of  accident  compensation  and  insurance  in  Europe.  Numerous 
articles  in  magazines  began  to  appear  in  the  earlier  years  of 
the  last  decade,  but  until  1909  or  1910  the  literature  on  the 
subject  in  English  was  very  limited  indeed,  as  compared  with 


AMERICAN  COMPENSATION  MOVEMENT      157 

the  veritable  flood  of  both  official  documents,  private  studies, 
and  popular  articles  during  the  last  few  years. 

When  Roosevelt  was  governor  of  New  York,  an  effort  was 
made  in  the  New  York  Legislature  to  introduce  a  compensa- 
tion law  similar  to  the  British  act  of  1897.  But  the  repre- 
sentatives of  labor  rejected  it,  preferring  to  work  for  a  more 
stringent  liability  law.1  This  attitude  of  the  labor  organiza- 
tions was  quite  characteristic  for  the  time. 

Oddly  enough,  the  first  successful  effort  was  made  in  a 
Southern  state — Maryland — where,  by  the  act  of  1902,  an 
employers'  and  employees'  co-operative  insurance  fund  was 
created  for  workingmen  employed  in  mines,  quarries,  and 
steam  and  electric  roads,  with  equal  contributions  from  both 
employer  and  employee,  to  be  administered  by  a  state  official, 
and  for  the  purpose  of  granting  the  sum  of  $1,000  in  each 
fatal  accident.  Thus,  with  one  bold  stroke,  a  system  of  state 
accident  insurance  was  introduced.  But  it  was  a  very  poor 
substitute,  even  for  a  system  of  liability.  For  in  depriving 
the  injured  workman  of  all  his  rights  under  liability  laws,  it 
granted  the  right  of  compensation  only  for  fatal  accidents, 
established  an  amount  of  compensation  which  was  a  miserable 
pittance  only,  and  that  at  a  considerable  cost  to  the  work- 
men, who  were  charged  one-half  of  the  contributions  to  the 
fund. 

The  law  did  not  exist  very  long.  It  was  in  force  from 
July  1,  1902,  to  April  28,  1904,  when  it  was  declared  un- 
constitutional on  the  ground  that  it  deprived  both  parties  of 
the  right  of  trial  by  jury,  and  conferred  on  an  executive 
officer  judicial  functions,  for  the  law  was  administered  in  all 
its  details  by  the  state  insurance  commissioner.  It  was  so 
faulty  in  its  details,  and  showed  such  misunderstanding  of 
European  experience,  on  which  it  claimed  to  have  been  based, 
that  it  died  an  unregretted  death,  except  for  the  fact  that  it 
might  have  been  taken  as  a  dark  omen  to  future  legislation 
on  the  same  lines  in  other  states. 

Outside  of  this  peculiar  experiment,  the  first  state  to  take  a 
more  decisive  step  was  Massachusetts.  In  1903  a  committee 
of  five  was  appointed  to  study  the  relations  between  employer 

1  Charles  R.  Henderson :  "  Workingmen's  Insurance  in  Illinois." 
American  Association  for  Labor  Legislation:  Proceedings  of  the  First 
Annual  Meeting,  1908. 


158  SOCIAL  INSURANCE 

and  employee,  and  the  question  of  liability  for  industrial 
injuries  was  specially  recommended  to  its  consideration.  The 
committee  prepared  and  recommended  a  fairly  comprehen- 
sive bill  on  the  lines  of  the  British  act  of  1897,  but  the  bill 
was  rejected  by  the  legislature  on  the  ground  that  such  a 
law  would  place  an  exceptional  burden  on  the  manufactures 
of  the  state,  and  would  cripple  them  in  competition — an  argu- 
ment which,  for  many  years,  exercised  a  powerful  influence 
in  retarding  compensation  legislation  as  well  as  many  other 
necessary  laws  for  the  protection  of  labor. 

Nevertheless,  the  movement  was  not  altogether  killed  in 
Massachusetts.  In  1907  another  joint  committee  was  ap- 
pointed in  response  to  a  concurrent  resolution  of  the  legis- 
lature. The  committee  this  time  did  not  dare  to  go  as  far  as 
their  predecessors,  pleading  by  a  small  majority  that  the  step 
was  premature.  They  did,  however,  recommend  an  act  which 
was  passed  by  the  legislature  in  1908,  authorizing  employers 
to  establish,  of  their  free  will,  compensation  schemes,  which,  if 
approved  by  the  State  Board  of  Conciliation  and  Arbitration, 
might  serve  as  substitutes  for  the  existing  employer's  liability. 
It  is  significant  that  the  law  remained  practically  a  dead 
letter,  thus  emphasizing  the  futility  of  counting  upon  the  good 
will  of  employers  as  a  force  to  accomplish  the  necessary  reform. 

A  similar  movement  took  place  about  the  same  time  in 
Illinois,  largely  under  the  influence  of  Professor  Charles  R. 
Henderson,  one  of  the  best  students  of  the  problem  of  social  in- 
surance in  the  United  States.  A  commission  containing  repre- 
sentatives of  capital,  labor,  law,  and  economics,  was  appointed 
in  May,  1905,  to  study  the  entire  matter  of  workingmen's 
insurance  and  old-age  pensions.  The  commission  presented  a 
draft  of  an  accident  insurance  bill,  the  shortcomings  of  which 
it  frankly  recognized,  but  thought  them  justified  by  considera- 
tions of  timeliness.2 

The  plan  provided  for  a  voluntary  compensation  scheme, 
through  a  mutual  insurance  institution,  with  equal  contribu- 
tions from  both  employers  and  employees,  and  a  very  limited 
compensation  scale.  Little  wonder  that  the  bill  met  with 
almost  unanimous  disapproval  of  organized  labor,  which  de- 
stroyed all  its  chances  for  success;  moreover,  the  manufac- 
turers also  resisted  any  extension  of  their  liability.  In  ex- 
2  See  Ch.  R.  Henderson,  loc.  cit.,  p.  76. 


AMERICAN  COMPENSATION  MOVEMENT      159 

plaining  the  failure  of  this  act,  Professor  Henderson  brings 
forth  many  interesting  considerations  why  American  work- 
ingmen  show  so  little  enthusiasm  for  compensation  and  in- 
surance: such  as  that  they  are  utterly  unfamiliar  with 
European  methods  of  handling  this  problem,  that  they  have 
been  trained  to  look  to  stringent  liability  legislation  for  relief, 
and  that  they  have  had  the  gambling  spirit  developed  in  them 
and  look  forward  to  large  speculative  awards.  But  perhaps 
the  best  and  most  weighty  reason  was  the  feeling  that  "  the 
particular  measure  came  short  of  the  best  European  laws," 
i.e.,  in  other  words,  the  workingman  instinctively  felt  that  a 
so-called  compensation  system  should  really  accomplish  its 
avowed  aim  by  granting  sufficient  compensation,  and  should 
do  so  at  the  expense  of  the  employer. 

In  Connecticut  also  a  committee  was  appointed  by  the  gov- 
ernor upon  demand  of  the  legislature  in  1907,  to  investigate 
the  problem  of  employer 's  liability,  though  it  was  not  specific- 
ally ordered  to  recommend  compensation  legislation.  The 
committee  made  a  brief  though  fairly  clear  study  of  some 
compensation  laws,  admitted  willingly  all  the  virtues  of  the 
system,  but  could  not  agree  to  recommend  a  bill  to  that 
effect,  mainly  because  of  fear  of  interstate  competition. 

The  modern  compensation  movement  may  be  said  to  date 
from  1908.  At  least,  during  that  year  it  received  a  con- 
siderable impetus  from  the  Federal  Government.  A  com- 
pensation law  for  the  employees  of  the  Federal  Gov- 
ernment (who  were  in  a  peculiarly  unfortunate  condition, 
in  that  they  were  not  even  protected  by  any  liability 
laws)  became  the  earnest  effort  of  the  Roosevelt  administra- 
tion. Many  references  to  it  were  made  in  the  presidential 
messages,  and  in  reports  of  cabinet  officers.  Finally,  after 
very  picturesque  wieldings  of  the  omnipotent  presidential 
club,  the  conservative  lawyers  of  the  Congress  were  forced 
to  pass  a  compensation  act  for  the  protection  of  some  govern- 
ment employees,  the  act  of  May  30,  1908,  very  limited  in  its 
application,  but  famous  for  being  the  first  real  Compensation 
Act  in  the  United  States. 

Viewed  in  the  light  of  modern  accomplishments  even  in  the 
United  States,  it  is  a  very  poor  piece  of  legislative  work  indeed, 
unduly  limited  in  its  extent,  miserly  in  its  grants,  and  pre- 
posterously crude  in  its  technical  construction.  Nevertheless 


160  SOCIAL  INSURANCE 

it  had  its  salutary  effect  at  the  time  as  an  encouraging  example 
of  results  accomplished. 

Under  the  influence  of  these  first  steps,  a  large  interest 
in  the  problem  grew  up.  By  the  appointment  of  legislative 
commissions  in  Minnesota,  New  York,  and  Wisconsin  in  1909, 
the  stage  of  commissions  and  investigations  was  inaugurated. 
In  New  York  the  local  branch  of  the  American  Association  for 
Labor  Legislation  was  largely  instrumental  in  obtaining  a 
commission.  In  Minnesota  the  movement  for  a  commission 
was  started  by  conferences  between  representatives  of  organ- 
ized labor  and  employers'  organizations,  in  which  the  State 
Commissioner  of  Labor  was  active.  In  Wisconsin,  too,  an  in- 
vestigation by  the  State  Bureau  of  Labor  largely  influenced 
public  interest  in  the  matter. 

Since  the  appointment  of  these  three  commissions  the  move- 
ment grew  by  leaps  and  bounds.  Other  states  followed.  In 
1910  commissions  were  appointed  in  Illinois,  Massachusetts, 
New  Jersey,  Ohio,  and  by  the  United  States  Government.  In 
1911,  in  Colorado,  Connecticut,  Delaware,  Iowa,  Michigan, 
North  Dakota,  Pennsylvania,  Texas,  and  West  Virginia.  In 
some  states,  as  California  and  Washington,  commissions  were 
appointed  by  the  governors  without  legislative  authority. 

The  period  of  commissions  is  not  yet  over,  and  more  ap- 
pointments of  this  nature  were  made  in  some  other  states  with 
the  opening  of  state  legislatures  in  1913.  Nevertheless  their 
importance  is  rapidly  declining,  and  they  have  fulfilled  their 
function  by  increasing  the  knowledge  of  the  problem  among 
the  American  public  and  legislators.  The  exhaustive  report 
of  the  U.  S.  Bureau  of  Labor  published  in  1911,  has 
furnished  all  the  facts  in  connection  with  European  condi- 
tions, and  the  reports  of  some  of  the  commissions,  especially 
those  of  New  York,  Wisconsin,  Minnesota,  Ohio,  Washington, 
and  Michigan,  have  supplied  a  general  picture  as  to  the  state 
of  the  problem  in  various  sections  of  the  country,  a  wealth  of 
arguments  against  employer's  liability  and  in  favor  of  com- 
pensation, and  have  popularized  some  knowledge  of  European 
institutions.  Further  local  investigations  by  state  committees 
can  add  but  little  to  this. 

It  is  gratifying  to  see  what  a  vast  amount  of  educational 
work  was  done  within  the  very  short  period  of  three  years  by 
these  commissions.  Soon  after  the  appointment  of  the  first 


AMERICAN  COMPENSATION  MOVEMENT      161 

commissions,  their  members,  feeling  their  lack  of  knowledge 
with  regard  to  compensation,  met  in  a  joint  conference  in 
Atlantic  City  (July,  1909),  upon  the  initiative  of  the  Minne- 
sota Commission.  A  permanent  "  National  Conference  on 
Workmen's  Compensation  "  was  organized,  which  met  for  the 
second  time  in  Washington,  in  January,  1910,  for  the  third 
time  in  Chicago  in  June,  1910,  and  again  in  Chicago  in  Novem- 
ber, 1910.  Three  commissions  were  represented  at  the  first 
meeting,  seven  at  the  third,  and  ten  at  the  fourth. 

The  reports  3  of  the  conference  may  not  represent  any  valu- 
able contributions  to  the  theory  of  compensation  or  accident 
insurance,  but  they  will  be  a  perfect  mine  of  information  for 
the  future  historian  of  social  legislation  in  the  United  States. 
The  lack  of  knowledge  of  the  whole  field  of  social  politics,  even 
among  trained  and  experienced  men  called  upon  to  suggest 
legislation,  was  almost  painful.  In  1909,  twenty-five  years 
after  Germany  had  established  the  compensation  system  on  a 
national  scale,  and  long  after  nearly  all  Europe  had  followed, 
the  three  subjects  selected  for  discussion  were,  (1)  the  De- 
sirability, (2)  Possibility,  and  (3)  Practicability  of  Accident 
Compensation.  But  the  anxiety  for  enlightenment  displayed 
was  admirable,  and  the  progress  made  within  less  than  eighteen 
months  may  be  gauged  from  the  fact  that  at  the  November, 
1910,  conference  in  Chicago,  the  main  subject  of  discussion 
comprised  the  detailed  provisions  of  a  model  draft  of  a  uni- 
form compensation  act. 

In  addition  to  these  governmental  authorities,  various  pri- 
vate agencies  showed  a  growing  interest  in  the  matter.  Most 
active  for  its  size  was  the  American  Association  for  Labor 
Legislation,  which,  after  many  years  of  somnolent  existence 
as  an  appendage  to  the  International  Association  for  Labor 
Legislation,  has  suddenly  grown  to  take  an  active  and  influ- 
ential interest  in  all  matters  of  labor  legislation,  and  rushed 
into  the  fight  for  accident  compensation.  Not  only  has  every 
annual  meeting  of  this  association  devoted  most  of  its  time 
to  problems  of  compensation,  but  in  many  states  local  branches 
were  formed  which  were  very  active  in  drafting  bills  and 

8  Report  of  Atlantic  City  Conference  on  Workmen's  Compensation 
Acts,  July,  1909;  Proceedings  Third  National  Conference  Workmen's 
Compensation  for  Industrial  Accidents  (including  report  of  the  Second 
National  Conference),  Chicago,  June,  1910;  Compensation  for  Indus- 
trial Accidents  Conference  of  Commissions,  Chicago,  November,  1910. 


162  SOCIAL  INSURANCE 

conducting  popular  agitation  in  their  favor.  Within  four 
years  seventeen  special  papers  on  this  subject  were  published 
by  this  association. 

Other  organizations  of  economic  students,  though  some- 
what late  in  the  day,  also  woke  up  to  the  importance  of  the 
problem.  The  Philadelphian  American  Academy  of  Political 
and  Social  Science  called  together  a  conference  on  this  problem 
in  April,  1911,  and  roused  a  great  deal  of  enthusiasm  by  a 
brilliant  series  of  addresses,  subsequently  published  in  a  valu- 
able volume.4  A  similar  meeting  was  held  by  the  New  York 
Academy  of  Political  Science  in  November,  19 II.5  But  such 
activity  on  the  part  of  organizations  established  for  the  specific 
purpose  of  labor  legislation  or  social  reform  was  to  be  ex- 
pected. More  significant  is  the  interest  taken  on  one  hand  by 
the  National  Civic*  Federation,  the  well-known  organization 
which  preaches  identity  of  interest  of  capital  and  labor,  and 
on  the  other,  the  still  more  active  interest  on  the  part  of  the 
National  Manufacturers '  Association,  the  most  militant  organ- 
ization of  American  capital  in  its  struggle  against  labor  unions 
and  against  demands  of  labor  in  general. 

The  National  Civic  Federation  appointed  a  special  Depart- 
ment on  Compensation  for  Industrial  Accidents,  has  since 
helped  to  keep  the  subject  before  the  public  by  featuring  it 
at  all  its  subsequent  meetings  and  conferences,  and  has  gone 
so  far  as  to  prepare  a  "  model  "  draft  of  a  uniform  compen- 
sation act.  Still  more  significant  is  the  favorable  attitude  of 
all  parties  concerned  in  the  matter — the  employers,  employees, 
attorneys,  and  insurance  companies.  The  attitude  of  the  Na- 
tional Association  of  Manufacturers  towards  the  efforts  of 
wage-workers  to  improve  their  economic  and  legal  conditions 
is  too  well  known  to  need  any  extensive  comment  here.  Never- 
theless, this  Association  has  also  appointed  a  special  committee 
for  the  study  of  accident  compensation  and  made  it  a  perma- 
nent feature  of  its  annual  meetings.  Perhaps  the  explanation 
may  be  found  in  the  statement  made  by  its  president,  that 
"  the  spirit  of  the  times  is  leading  toward  visionary  concep- 
tions of  life  and  duty,  and  that  the  atmosphere  is  charged  with 

*  Risks  in  Modern  Industry  (The  Annals  of  American  Academy  of 
Political  and  Social  Science,  July,  1911). 

5  See  Third  Annual  Report  of  the  New  York  Association  for  Labor 
Legislation  for  papers  read  at  this  meeting. 


AMEEICAN  COMPENSATION  MOVEMENT      163 

the  murmurings  of  discontent,  upon  which  the  agitator  fattens 
and  the  political  demagogue  thrives. ' '  6  It  thus  became  neces- 
sary for  the  Association  to  thwart  these  dangerous  movements 
by  its  own  compensation  scheme.  Under  the  direction  of  the 
Association,  an  investigation  of  European  conditions  was 
undertaken  by  Messrs.  F.  C.  Schwedtman  and  J.  E.  Emery,  the 
results  of  which  were  given  recently  in  a  magnificently  pub- 
lished report,  which  makes  a  strenuous  plea  for  contributions 
from  employees,  for  "  they  provide  a  justly  proportionate 
distribution  of  the  pecuniary  burden."  7 

On  the  other  hand,  American  labor  has  also  changed  its 
opinion,  and  whereas  in  1899  in  New  York,  and  in  1905  in 
Illinois,  organized  labor  strenuously  fought  against  compen- 
sation, since  1909  the  American  Federation  of  Labor  stands 
committed  in  its  favor.  Its  president  has  repeatedly  appeared 
in  its  defense,  and  various  state  branches  have  prepared  and 
fought  for  their  own  drafts  of  bills.  The  legal  profession, 
through  the  American  Bar  Association,  were  soon  moved  to 
appoint  a  special  committee  to  prepare  a  plan  for  uniform 
compensation  legislation,  though,  perhaps,  there  is  no  other 
class  in  the  community  which  derives  so  much  profit  out  of 
the  existing  liability  system,  and  whose  economic  interest  is  so 
seriously  threatened  by  the  substitution  of  a  compensation 
insurance  system,  as  is  the  legal  fraternity. 

But,  perhaps,  most  significant  of  the  new  order  of  things 
were  the  several  private  compensation  schemes  or  voluntary 
accident  relief  systems  by  various  large  corporations,  employ- 
ing perhaps  larger  numbers  of  wage-workers  than  many  of  the 
states  of  the  Union  can  boast  of.  This  feature  of  the  com- 
pensation movement  attracted  a  great  deal  of  attention  in 
1910,  on  the  eve  of  the  era  of  compensation  legislation,  and 
was  made  a  good  deal  of  by  some  sentimental  reformers,  who 
wanted  to  look  to  such  schemes  for  a  possible  solution  of  the 
problem. 

The  two  most  conspicuous  systems,  of  the  United  States 
Steel  Corporation  and  of  the  International  Harvester  Com- 
pany, the  first  with  an  army  of  over  200,000  employees,  and 

6  National  Association  of  Manufacturers'  Fifteenth  Annual  Conven- 
tion, New  York,  1910,  p.  85. 

7  Accident  Prevention  and  Relief,  by  F.  C.   Schwedtman  and  J.  E. 
Emery,  New  York,  1911. 


164  SOCIAL  INSURANCE 

the  latter  with  some  30,000,  were  hailed  as  eloquent  examples 
of  the  new  spirit  of  social  welfare  permeating  American 
industry. 

Perhaps  the  recent  strikes  in  various  plants  of  both  these 
corporations  have  somewhat  darkened  the  halo  of  benevolence 
which  for  a  time  these  plans  had  acquired.  In  the  light  of 
even  the  American  laws  passed  since,  the  scale  of  compensa- 
tion which  these  plans  provided  were  so  ridiculously  low, 
that  there  could  hardly  be  any  doubt  as  to  the  real  intent  of 
those  systems,  namely,  that  of  substituting  cheap  compensa- 
tion schemes  for  expensive  liability  suits,  and  this  intent  is 
underscored  by  the  provision  that  the  bringing  of  a  suit  at 
law  bars  all  benefits  under  the  scheme. 

To  characterize  the  peculiar  conception  of  compensation 
for  loss  sustained,  embodied  in  the  scheme  of  the  Steel  Corpo- 
ration, it  is  sufficient  to  say  that  the  value  placed  upon  the 
hand  or  leg  of  the  workingman  was  twelve  months'  wages, 
and  that  of  an  eye  only  six  months'.  With  the  standard  of 
wages  among  the  vast  majority  of  employees  in  the  American 
steel  industry  between  $9  and  $12  a  week,  this  was  placing 
a  value  of  $300  upon  an  eye  and  $600  upon  an  arm  or  leg. 

Another  characteristic  feature  of  this  plan  is  its  de- 
pendence upon  length  of  service,  so  that  compensation  for 
injuries  sustained  partakes  of  the  nature  of  a  reward  for  faith- 
ful service  rendered — an  incongruous  combination  which  no 
compensation  law  would  permit.  The  death  benefit  provided 
is  ridiculously  insufficient — eighteen  months'  earnings  for 
married  men  living  with  their  families.  This  exclusion  from 
all  benefits  of  surviving  relatives  in  case  of  unmarried  men, 
or  of  married  men  not  living  with  their  families,  was  a  very 
convenient  way  of  excluding  from  compensation  the  families 
of  most  immigrant  laborers,  who  constitute  perhaps  the  ma- 
jority of  the  employees  of  the  United  States  Steel  Corporation. 

The  International  Harvester  Company's  scheme,  which 
went  into  effect  on  May  1,  1910,  was  somewhat  more  favor- 
able. Under  this  scheme  the  compensation  for  a  fatal  accident 
was  placed  at  three  times  the  annual  wages,  the  loss  of  a 
foot  or  arm  one  and  a  half  year's  wages,  and  the  loss  of  one 
eye  nine  months'  wages.  In  cases  of  total  disability  half 
wages  for  two  years  was  provided,  and  after  that  a  pension  of 
$10  per  month.  The  employees  were  given  the  privilege  of 


AMERICAN  COMPENSATION  MOVEMENT      165 

providing  for  themselves  a  higher  level  of  compensation  in 
case  of  accident  by  making  small  contributions. 

But  though  the  intrinsic  worth  of  these  private  or  indus- 
trial schemes  is  slight,  they  are  significant  of  the  remarkable 
change  which  occurred  in  the  country  on  the  subject  of 
liability  and  compensation.  In  fact,  though  an  occasional 
protest  against  this  new  charge  upon  American  industry,  and 
a  defense  of  the  old  liability  system  on  the  ground  of  pure 
justice,  are  still  met  with  in  the  daily  press,  particularly  in 
commercial  publications,  it  is  almost  impossible  to  put  one's 
finger  upon  any  organized  body  of  men  who  would  at  present, 
in  the  open,  dare  to  take  the  stand  against  compensation. 

Truly,  a  remarkable  change  of  heart  has  evidently  been 
experienced  within  a  very  short  time,  and  the  practical  results 
of  it  are  already  enormous.  In  this  respect  the  history 
of  the  movement  in  this  country  is  very  much  different  from 
what  it  was  in  Europe.  For  fully  fifteen  to  twenty  years 
parliamentary  debates  and  public  discussions  have  preceded 
the  enactment  of  laws  in  France,  Italy,  Russia,  Spain,  or  the 
Scandinavian  countries. 

What  is  responsible  for  this  rather  sudden  and  sweeping 
change  ?  There  is  no  doubt  that,  judging  from  the  rapid  rate 
of  advance,  we  are  dealing  here  with  a  historic  movement  of 
prime  importance.  Of  course  the  general  causes  of  the  com- 
pensation movement  throughout  the  world  are  well  under- 
stood, and  they  are  the  same  in  the  United  States  as  in  any 
other  industrial  country.  Nevertheless,  there  must  have  been 
some  specific  moving  forces  which  created  this  movement 
throughout  the  United  States,  when  only  a  few  years  ago  not 
only  the  principle  of  personal  liability,  but  even  all  the 
limitations  upon  it,  were  considered  sacred  and  unassailable. 
And  especially  does  some  explanation  seem  necessary,  when  the 
demand  for  protection  of  the  rights  of  labor  proceeds  not 
only  from  workingmen's  organizations  (one  is  almost  tempted 
to  say  not  so  much  from  these  organizations),  but  also  from  the 
other  side  of  the  line  dividing  economic  interests. 

It  might  be  argued  that  the  change  is  due  to  the  formation 
of  an  enlightened  public  opinion  on  the  subject  of  compensa- 
tion as  practised  in  Europe.  It  is  undoubtedly  true  that  five 
years  ago  the  state  of  ignorance  in  the  United  States  on  the 
entire  subject  of  workmen 's  insurance  was  quite  shocking,  and 


166  SOCIAL  INSURANCE 

that  is  a  serious  indictment  against  American  economic 
science  which  cannot  easily  be  dismissed.  For,  during  the 
last  quarter  of  a  century,  the  economists  of  all  countries  were 
carefully  studying  the  social  legislation  of  their  neighbors, 
while  our  students  held  aloof  from  these  problems,  and  either 
spent  all  their  energies  upon  doubtful  points  in  various 
theories  of  value,  or  if  they  ventured  into  practical  economics, 
saw  nothing  but  problems  of  trusts  or  corporation  finance; 
so  that  it  was  left  largely  to  the  popular  magazine  writers  to 
create  a  sentiment  for  compensation  or  insurance. 

Nevertheless,  even  this  cannot  serve  as  a  full  explanation, 
for  there  has  been  a  veritable  hunger  for  information,  where 
five  or  ten  years  ago  an  article  on  Workmen's  Insurance  was 
a  drug  on  the  market.  There  must  have  been  material  forces 
back  of  this  movement.  One  of  them  is  what  is  often  termed 
the  growth  of  new  democracy,  that  is,  the  growing  social 
unrest,  the  demand  for  social  justice,  the  growth  of  radical 
tendencies  in  American  political  and  social  life,  undoubtedly 
due  to  such  economic  conditions  as  the  enormous  development 
of  industry  within  the  last  fifteen  years,  and  the  general 
accentuation  of  all  economic  and  social  problems  created  by 
the  monopolistic  tendencies  in  industry  and  the  rise  of  the 
cost  of  living.  That,  however,  might  explain  the  favorable 
attitude  of  the  workers  to  compensation,  but  not  that  of  the 
employers '  associations. 

But  while  the  principle  of  workingmen's  compensation  is 
directly  opposed  to  the  principle  of  liability,  nevertheless  a 
close  connection  between  them  in  practice  cannot  be  denied. 
Both  represent  efforts  to  protect  the  injured  workman  at  the 
expense  of  the  employer  or  industry.  Knowing  nothing  of 
compensation,  American  workmen  were  fighting  for  stronger 
liability  laws  for  years.  It  is  true  that  this  could  not  solve 
the  problem  as  far  as  the  majority  of  the  injured  workmen 
were  concerned,  but  it  nevertheless  had  its  strong  effect  upon 
the  employer's  purse.  Not  only  abstract  laws,  but  living 
juries  and  even  judges  could  not  escape  the  pressure  of  this 
movement,  for  where  verdicts  against  injured  workmen  in 
damage  suits  had  been  considered  quite  the  natural  thing,  they 
became  objects  of  severe  criticism. 

As  a  result  of  this  tendency,  which  has  often  been  described 
by  conservative  writers  and  speakers  as  one  of  "  enmity  to 


AMERICAN  COMPENSATION  MOVEMENT      167 

capital,"  verdicts  in  favor  of  the  injured  workingmen  became 
very  much  more  common,  and  the  amounts  of  verdicts  have 
rapidly  risen.  Verdicts  of  $5,000,  $10,000,  or  even  $25,000, 
became  more  frequent.  Ten  years  ago  courts  of  appeals  could 
almost  be  depended  upon  to  reverse  any  large  verdict  in  favor 
of  an  injured  workman  on  some  technical  ground,  but  this 
situation  gradually  gave  way.  The  statistics  of  liability  in- 
surance companies  showed  a  constant  increase  not  only  in  the 
percentage  of  accidents  for  which  claims  were  made  by  the 
injured,  but  also  in  the  percentage  of  claims  which  the  in- 
jured were  willing  to  press  for  trial  and  further  for  appeal, 
while  the  percentage  of  cases  reversed  in  appeal  rapidly  de- 
creased. 

Under  these  influences,  the  cost  of  liability  for  accidents, 
instead  of  being  a  remote  contingency,  as  ten  or  twenty  years 
ago,  "became  a  perceptible  factor  in  the  cost  of  production. 
As  a  result,  liability  insurance  was  becoming  daily  more  popu- 
lar, and  from  a  luxury  it  grew  into  a  necessity,  as  the  rapid 
development  of  liability  insurance  companies  within  the  last 
decade  eloquently  shows.  Necessarily,  rates  for  employer's 
liability  were  forced  upwards  in  consequence.  Moreover, 
liability  insurance  companies  refused  to  take  exceptional  risks, 
and  were  willing  to  insure  ordinarily  only  up  to  a  limit  of 
$5,000,  charging  heavy  rates  for  additional  coverage,  and 
thus  the  possible  cost  of  industrial  accidents  became  a  threaten- 
ing factor  in  all  computation  of  cost  of  production. 

Thus,  the  employers  gradually  learned  to  appreciate  the 
advantages  of  insurance,  and  also  the  advantages  of  a  limited 
scale  of  compensation.  And  it  is  often  the  limited  compensa- 
tion scale  much  more  than  the  certainty  that  all  injuries  will  be 
compensated,  which  appeals  to  the  employer. 

It  is  undoubtedly  under  the  pressure  of  this  "  dollars  and 
cents  "  argument,  that  the  manufacturers'  associations  be- 
came very  much  more  alive  to  the  humanitarian  point  of 
view  and  to  the  shortcomings  of  the  liability  system,  to  the 
waste  of  trials  for  accident  liability,  and  to  the  general  ad- 
vantages of  a  compensation  system  with  its  limited  scale  of 
compensation.  This  may  be  considered  a  grossly  material  ex- 
planation of  nobly  humanitarian  motives.  It  is  necessary 
to  point  out,  therefore,  that  the  effort  to  make  compensation 
cheap  rather  than  just  was  very  prominent  in  all  the  plans 


168  SOCIAL  INSUKANCE 

proposed  by  these  associations,  and  even  that  of  the  National 
Civic  Federation,  where  there  was  for  a  time  an  outspoken 
tendency  to  force  a  part  of  the  cost  of  compensation  upon  the 
employee.  Many  leading  workers  for  compensation  who  repre- 
sented the  employing  class,  flatly  stated  their  preference 
for  compensation  provided  it  did  not  cost  any  more  than  the 
present  wasteful  liability  system.  The  argument  of  the  waste- 
fulness of  the  liability  system,  and  especially  of  liability 
insurance,  was  emphasized  over  all  other  arguments,  though 
as  a  matter  of  fact,  ten  years  ago,  when  liability  insurance 
was  very  much  cheaper,  it  was  also  very  much  more  wasteful, 
in  that  a  smaller  proportion  of  the  premiums  was  used  in 
actual  payments  to  claimants ;  but  because  liability  insurance 
was  cheap  its  wastefulness  did  not  disturb  the  employers. 


CHAPTER  XI 

AMERICAN  COMPENSATION  LEGISLATION 

1908-1913 

ALTOGETHER,  twenty-four  American  jurisdictions  have  en- 
acted laws  which  may  be  described  as  compensation  or  accident 
insurance  laws.  A  list  of  the  acts  in  their  chronological  order 
is  given  in  the  following  table.  Of  the  thirty-three  acts 
passed,  three  were  declared  unconstitutional,  and  three  are 
purely  optional  and  for  all  practical  purposes  a  dead  letter, 
and  five  were  substituted  by  more  recent  acts,  while  seven 
have  not  yet  gone  into  effect  at  this  writing  (July,  1913  ),* 
leaving  only  fifteen  in  active  operation. 

LIST  OF  COMPENSATION  ACTS  ENACTED  BY  VARIOUS  STATES 

Year  of  enactment  State  Date  effective 

1902 Maryland  (a)    July  1st,  1902 

1908 United   States    August  1st,  1908 

1909 Massachusetts  (c) July  1st,  1910 

1909 Montana  (a)    Oct.  1st,  1910 

1910  Maryland  (c)    May  1st,  1910 

1910 New  York  (c)    Sept.  1st,  1910 

1910 New  York  (a)    Sept.  1st,  1910 

1911 Nevada    July  1st,  1911 

1911 New  Jersey July  4th,  1911 

1911 California Sept.  1st,  1911 

1911 Wisconsin Sept.  1st,  1911 

1911 Washington   Oct.  1st,  1911 

1911 New  Hampshire Jan.  1st,  1912 

1911 Ohio   Jan.  1st,  1912 

1911 Kansas Jan.  1st,  1912 

1911 Maryland  (b)    April  15th,  1912 

(a)  Since  declared  unconstitutional. 

(ft)  Purely  local  law,  applying  only  to  coal  and  clay  mining  in  two  counties. 

(c)  Purely  optional  law— a  dead  letter. 

1  Of  these,  two  (those  of  Oregon  and  Nebraska)  have  been  delayed  from 
going  into  effect  at  the  date  provided  in  the  law,  because  of  the  initiation 
of  referendum  while  these  pages  were  going  through  the  press.  In  several 
states  minor  changes  were  recently  made  which  are  not  recorded  in  the 
above  table, 

169 


170  SOCIAL  INSUEANCE 

Year  of  enactment  State  Date  effective 

1911 Illinois  May  1st,  1912 

1911 Massachusetts July  1st,  1912 

1912 Michigan    Sept.  1st,  1912 

1912 Arizona Sept.  1st,  1912 

1912 Rhode  Island Oct.  1st,  1912 

1913   Kansas  (d) March  29th,  1913 

1913   New  Jersey  (d)    April  9th,  1913 

1913  Oregon July  1st,  1913 

1913  Nevada  (d)    July  1st,  1913 

1913  Nebraska July  17th,  1913 

1913  Minnesota Oct.  1st,  1913 

1913 Texas    Sept.  1st,  1913 

1913  West  Virginia Oct.  1st,  1913 

1913 Ohio  (d)    Jan.  1st,  1914 

1913 Connecticut   Jan.  1st,  1914 

1913 California  (d)   Jan.  1st,  1914 

1913  Iowa July  1st,  1914 

(d)  Revision  of  earlier  acts. 

Excepting  the  Maryland  act  of  1902,  the  Federal  Govern- 
ment was  the  first  in  the  lead  with  the  act  of  May  30,  1908, 
which  has  already  been  referred  to. 

Far-off  Montana  followed  suit  in  1909  with  an  act  estab- 
lishing compulsory  insurance,  but  limited  even  more  than 
the  Maryland  act — to  one  industry  only,  namely  coal  mining. 
The  Montana  act  was  conceived  in  a  very  praiseworthy  spirit. 
It  was  intended  to  embody  at  once  the  three  main  principles 
which  European  experience  has  developed,  compensation,  com- 
pulsion of  insurance,  and  state  insurance.  Unfortunately, 
the  technical  knowledge  was  lacking  to  make  it  an  efficient 
law.  It  provided  a  state  accident  fund  to  be  supported  by 
definite  taxes,  both  upon  employer  and  employee.  From  this 
fund  death  benefits  of  $3,000  were  payable  to  dependents,  but 
not  if  they  were  foreigners,  and  only  widow  and  children  were 
considered.  Of  the  non-fatal  accidents  only  permanent  dis- 
ability was  recognized,  and  a  benefit  of  one  dollar  per  day  was 
established,  in  addition  to  a  compensation  of  $1,000  for  loss  of 
limb  or  eye.  Though  payment  of  the  taxes  was  compulsory 
for  both  employer  and  employee,  the  injured  or  his  dependents 
could  ignore  the  provisions  of  the  act  and  sue  the  employer 
at  common  law.  Only  acceptance  of  benefits  barred  action. 
The  act  was  extremely  crude  in  its  details,  though  praise- 
worthy in  its  intent.  It  went  into  force  on  October  1,  1910, 
but  very  soon  was  declared  unconstitutional  on  the  ground 


AMERICAN  COMPENSATION  LEGISLATION    171 

that  in  permitting  employees  to  waive  their  rights  under  the 
insurance  act  and  sue  the  employer  who  had  made  the  required 
contributions  to  the  insurance  fund,  there  was  not  given  to 
the  employer  that  equal  protection  of  the  law  which  was  his 
constitutional  right. 

Thus,  the  second  effort  at  compensation  legislation  also  fell 
a  victim  to  the  constitutional  ax,  though  the  decision  was  made 
on  a  comparatively  unimportant  technicality. 

The  purely  permissive  acts  of  Maryland  and  Massachusetts, 
which  remained  a  dead  letter,  need  not  be  further  discussed. 
Much  more  important  was  the  next  act  passed,  that  of  the 
Empire  State  of  New  York.  The  third  act  to  be  passed  and 
to  be  declared  unconstitutional,  like  the  acts  of  Maryland  and 
Montana,  was  the  so-called  Wainwright  act  of  1910. 

Of  the  three  commissions  appointed  in  1909,  that  of  New 
York  was  most  energetic  and  successful.  Early  in  1910  it 
introduced  two  bills,  one  strengthening  the  liability  legisla- 
tion, and  also  permitting  employers  and  employees  to  agree  to 
a  compensation  scheme  in  lieu  of  employer's  liability,  and 
the  other  prescribing  compulsory  compensation  for  certain 
specified  dangerous  employments.  Both  bills  became  laws — 
the  first  on  May  24,  1910,  and  the  latter  on  June  25,  1910. 
Experience  in  Massachusetts  has  already  shown  the  ineffective- 
ness of  permissive  compensation  laws,  and  it  is,  therefore,  the 
act  of  June  25,  1910,  introducing  compulsory  compensation 
for  a  few  trades,  that  is  usually  looked  upon  as  ushering 
in  the  modern  era  of  compensation  acts  in  American  states. 

The  act  was  drafted  with  a  great  deal  of  care  and  even 
timidity,  with  full  consciousness  of  the  many  obstacles  in  its 
way,  and  melancholy  forebodings  as  to  its  future.  These 
naturally  influenced  its  provisions,  especially  as  far  as  the 
extent  of  its  application  was  concerned.  It  was  broader  than 
its  two  unfortunate  predecessors,  which  were  limited  to  one 
or  two  industries  only.  But  it  was  far  from  a  general  act, 
as  it  was  limited  to  eight  industries  or  occupations:  iron  or 
steel  building  erection,  operation  of  elevators,  etc.,  work  on 
scaffolds  with  over  twenty  feet  elevation,  electric  wire  work, 
work  with  or  near  explosives,  railroad  operation  or  construc- 
tion, construction  of  tunnels  or  subways,  and  compressed  air 
work,  or,  briefly,  building,  construction,  railroad,  and  ex- 
plosives. 


172  SOCIAL  INSURANCE 

There  were  several  reasons  for  this  selection.  These  were 
all  especially  dangerous  trades,  where  accident  compensation 
was  most  needed.  Second,  all  these  trades  are  such  as  cannot 
be  shifted  from  one  place  to  another.  In  this  way  the  Com- 
mission hoped  to  overcome  the  objection  based  upon  the  argu- 
ment of  interstate  competition.  Obviously,  if  a  factory  might 
be  removed  for  such  reasons,  the  building  to  be  erected  or  the 
subway  to  be  constructed  in  New  York  City  could  not  be  moved 
to  Hoboken  to  avoid  this  charge. 

The  third  argument  was  undoubtedly  the  constitutional 
one.  It  was  hoped  that  the  selection  of  specially  hazardous 
trades  might  remove  or  minimize  the  constitutional  difficulties 
which  were  very  much  feared,  on  the  ground  that  the  extra- 
hazardous  nature  of  the  work  justified  the  exercise  of  the 
police  power  of  the  state  in  the  enactment  of  a  compensation 
law. 

That  serious  constitutional  objections  against  compensation 
legislation  might  be  advanced  by  the  courts  was  the  fear  of  all 
workers  in  the  field.  The  New  York  Commission  devoted  a 
good  deal  of  consideration  to  this  problem.  It  was  the  most 
carefully  discussed  problem  at  the  Atlantic  City  Conference. 
And  within  the  brief  period  of  three  or  four  years,  an  enor- 
mous literature  on  this  one  problem  of  constitutionality  has 
appeared. 

It  would  be  idle  to  undertake  to  add  anything  of  value  to 
this  exhaustive  discussion  of  a  highly  technical  legal  problem. 
The  reader  who  is  inclined  that  way  and  has  the  necessary 
legal  training  may  be  referred  to  the  special  studies  published, 
to  the  reports  of  the  various  state  commissions,  all  of  whom 
were  forced  to  face  this  problem,  to  the  proceedings  of  the 
National  Compensation  Conference,  and  of  many  other  public 
meetings  where  this  problem  was  discussed,  and  especially  to 
the  five  volumes  of  hearings  before  the  U.  S.  Employers' 
Liability  and  Workmen's  Compensation  Commission.  Of 
course,  to  the  non-legal  mind,  the  whole  problem  was  be- 
wildering. But  students  of  American  constitutional  law,  who 
viewed  the  problem  from  a  technical  point  of  view,  saw  grave 
dangers.  Of  the  many  constitutional  difficulties  two  were 
admitted  to  be  most  serious.  The  very  basis  of  the  com- 
pensation system,  that  of  making  the  employer  responsible 
for  an  accident  occurring  admittedly  without  any  fault  of 


AMERICAN  COMPENSATION  LEGISLATION    173 

his, — occurring  possibly  because  of  fault  of  the  injured  him- 
self,— was  opposed  to  the  foundations  of  common  law,  was 
an  inroad  upon  the  employers'  constitutional  rights;  in  fact, 
y     was  no  less  than  "  taking  property  without  due  process  of 

law,"  or  confiscation. 

X  Second,  the  compensation  system,  making  for  automatic 
determination  of  damages  instead  of  by  injuries,  was  depriving 
the  employee  of  his  right  of  trial.  The  first  objection  centered 
about  the  construction  of  the  sentence  "  due  process  of  law." 
It  is  not  a  conception  easily  grasped  by  the  lay  mind,  which 
cannot  understand  how  any  law  properly  enacted  by  the  legis- 
lative power  of  the  government  may  be  accused  of  doing 
anything  without  l(  due  process  of  law."  However,  we  are 
dealing  here  with  the  double  meaning  of  the  word  law,  which 
may  be  indicated  by  the  two  German  equivalents,  "  Recht," 
and  ' '  Gesetz. ' '  As  the  New  York  Court  of  Appeals  has  sub- 
sequently stated  very  clearly,  "  Law  as  used  in  this  sense 
means  the  basic  law,  and  not  the  very  act  of  legislation  which 
deprives  the  citizen  of  his  rights,  privileges,  or  property. 
Any  other  view  would  lead  to  the  absurdity  that  the  con- 
stitutions protect  only  those  rights  which  the  legislatures  do 
not  take  away." 

The  New  York  Commission  itself,  the  majority  of  whose 
membership  were  reared  in  the  old  legal  and  economic  con- 
cepts, admitted  unequivocally  the  validity  of  both  these  ob- 
jections. In  its  report  it  stated:  "  We  are  advised  by  nearly 
all  the  lawyers  who  have  aided  us  with  their  advice,  that  a 
general  compensation  act,  modeled,  for  instance,  on  the  Ger- 
man system  or  the  English  act  of  1906,  would  be  unconstitu- 
tional in  this  state." 

The  Commission  tried  to  avoid  the  "  trial  by  jury  "  diffi- 
culty by  leaving  open  to  the  injured  the  right  to  sue  his 
employer  in  the  old  way,  if  he  so  desired.  And  it  met  the 
"  due  process  of  law  ':  objection  by  the  narrow  limits 
of  the  law,  arguing  that  the  very  dangerous  nature  of  the 
trades  enumerated  justified  the  state  in  passing  the  compen- 
sation law,  a  proper  exercise  of  the  police  power,  for  the 
right  to  regulate  dangerous  trades  has  been  definitely  ad- 
mitted. 

This  attitude  of  the  New  York  Commission  was  somewhat 
discouraging  to  the  progress  of  the  compensation  movement, 


174  SOCIAL  INSURANCE 

for  it  admitted  the  impossibility  of  a  general  compensation 
law. 

That  the  industries  and  occupations  enumerated  in  the  New 
York  act  of  1910  were  highly  dangerous  could  not  be  dis- 
puted. But  this  fact  did  not  help  its  fate  any.  By  the  now 
famous  decision  in  the  case  of  Ives  v.  the  South  Buffalo 
Railroad  Co.,  rendered  on  March  24,  1911,  the  New  York 
Court  of  Appeals,  while  admitting  that  accident  compensa- 
tion may  be  desirable,  held  that  "  the  liability  sought  to  be 
imposed  upon  the  employers  is  a  taking  of  property  without 
due  process  of  law,  and  the  statute  is  therefore  void."  The 
court  held  that  "  the  statute,  judged  by  our  common  law 
standards,  is  plainly  revolutionary  ";  that  "  '  process  of 
law  '  in  its  broad  sense  means  law  in  its  regular  course  of 
administration,  through  courts  of  justice,  and  that  is  but 
another  way  of  saying  that  every  man 's  right  to  life,  liberty, 
and  property  is  to  be  disposed  of  in  accordance  with  these 
ancient  and  fundamental  principles,  which  were  in  existence 
when  our  Constitution  was  adjusted."  With  equal  em- 
phasis the  New  York  Court  of  Appeals  dismissed  the 
plea  that  the  act  was  a  proper  exercise  of  the  police 
power.  "  In  order  to  sustain  legislation  under  the  police 
power,"  the  court  said,  "  the  courts  must  be  able  to  see 
that  its  operation  tends  in  some  degree  ...  to  preserve 
public  health,  morals,  safety,  and  welfare.  .  .  .  The  new  ad- 
dition to  the  labor  law  does  nothing  to  conserve  the  health, 
safety,  or  morals  of  the  employees." 

It  is  characteristic  of  the  changed  attitude  of  all  classes  of 
the  American  people  on  this  problem,  that  this  decision  of 
the  Court  of  Appeals  was  severely  criticised,  as,  perhaps,  no 
decision  of  a  higher  court  has  ever  been  criticised  before,  by 
most  conservative  lawyers  and  writers. 

Professor  Ernest  Freund  of  Chicago  University  states  that 
"  the  New  York  decision  is  not  generally  accepted  as  finally 
settling  the  question,  the  expressions  of  dissent  and  criticism 
have  been  numerous  and  strong, ' '  and  he  further  expresses  his 
"  hope  that  the  decision  will,  in  course  of  time,  yield  to 
views  which  are  sounder  legally  as  well  as  socially  more 
satisfactory."  This  is  rather  strong  language  when  coming 
from  a  professor  of  law  and  applied  to  one  of  the  highest 
courts  in  the  country.  Professor  H.  R.  Seager  termed  it  a 


AMERICAN  COMPENSATION  LEGISLATION    175 

"  narrow  and  non-progressive  interpretation/7  Notwith- 
standing the  ruling  of  the  New  York  Court  of  Appeals  that 
compensation  is  opposed  to  the  Federal  Constitution,  the  U.  S. 
Employers'  Liability  and  Workmen's  Compensation  Com- 
mission proceeded  to  draw  a  bill  embodying  this  principle 
of  compulsory  compensation,  and  the  Supreme  Court  of  the 
State  of  Washington,  in  passing  upon  the  Washington  state 
act  (of  which  more  later)  said: 


"  In  the  foregoing  discussion  we  have  not  referred  to  the  decision 
of  the  Court  of  Appeals  of  the  State  of  New  York.  We  shall  offer 
no  criticism  of  the  opinion;  we  will  only  say  that,  notwithstanding 
the  decision  comes  from  the  highest  court  of  the  first  State  of  the 
Union,  and  is  supported  by  a  most  persuasive  argument,  we  have  not 
been  able  to  yield  our  consent  to  the  view  there  taken." 


But  whether  the  decision  is  good  law  or  bad  law,  it  is  law 
nevertheless.  And  not  only  did  it  settle  matters  for  New  York 
but  influenced  many  other  states.  Ten  states  passed  com- 
pensation acts  during  the  legislative  term  of  1911,  and  only 
two  of  these — Washington  and  Nevada — dared  to  make  the 
law  compulsory  in  face  of  the  New  York  decision. 

Of  the  fifteen  states  legislating  on  the  subject  in  1912  and 
1913,  only  two  more,  Ohio  and  California,  succeeded  in  adopt- 
ing compulsory  acts. 

A  method  to  avoid  these  constitutional  difficulties  was  found 
in  the  so-called  "  elective  plan,"  or  New  Jersey  plan,  because 
it  seems  to  have  been  first  suggested  by  the  New  Jersey  Com- 
mission, though,  as  a  matter  of  fact,  Kansas  was  three  weeks 
ahead  of  New  Jersey  in  passing  an  act  of  the  same  type. 
This  plan  was  adopted,  in  one  form  or  another,  by  twenty 
states. 

Now,  what  is  an  elective  compensation  act? 

Under  an  elective  system,  the  election  by  both  parties  to 
abide  by  the  law  must  be  made  before  the  accident  occurs,  as 
a  part  of  the  wage  contract.  It  has  already  been  mentioned 
that  in  Massachusetts  in  1909,  in  Maryland  and  in  New  York 
in  1910,  acts  were  passed  permitting  employer  and  employee 
to  agree  upon  a  compensation  scheme  as  a  substitute  for 
liability,  but  these  three  acts  have  remained,  and  were  prob- 
ably expected  to  remain,  a  dead  letter. 


176  SOCIAL  INSURANCE 

Why  should  an  employer  elect  to  come  under  a  compen- 
sation system?  Either  out  of  a  recognition  of  social  justice, 
or  because  compensation  with  a  definite  scale  might  be  cheaper 
than  the  possible  high  losses  under  liability.  It  is  question- 
able whether  the  workmen  have  much  faith  in  the  power  of 
the  first  argument  upon  the  employer,  and  the  second  con- 
sideration may  very  likely  keep  the  employees  back  from 
agreeing. 

The  new  elective  compensation  method,  as  embodied  already 
in  over  twenty  state  acts,  introduces  a  new  factor.  Perhaps 
we  might  be  permitted  to  style  it  "  the  club  of  gentle  but 
efficient  persuasion/' 

In  simple  English,  devoid  of  all  legal  technicalities,  the  law 
says  to  the  employer:  "  Here  is  a  compensation  system  with 
a  limited  scale  of  compensation  for  all  injuries  irrespective 
of  the  cause  or  any  one's  fault.  You  may  select  to  abide  by 
this  system  or  not,  as  you  choose.  But  if  you  do  not  choose 
to  compensate  all  injuries  according  to  this  scale,  we  will 
destroy  the  old  defenses  of  fellow-servant,  of  contributory 
negligence,  and  of  assumption  of  risk  altogether,  and  you  know 
what  is  going  to  happen.  Your  lawsuits  for  damages  will 
immediately  increase,  and,  with  the  three  defenses  abolished, 
you  will  have  a  pretty  hard  time  waiving  liability,  and  while 
you  may  not  have  to  compensate  all  injuries,  the  heavy  ver- 
dicts in  future  will  cost  you  as  much  or  more.  Now  you  are 
warned,  and  you  are  at  liberty  to  make  your  free  choice,  and, 
of  course,  this  being  the  free  choice  of  your  own  will,  you  are 
not  deprived  of  any  rights  guaranteed  to  you  by  the  con- 
stitution, you  are  not  deprived  of  property  without  due  process 
of  law,  because  you  consent  to  the  arrangement,  therefore, 
the  act  cannot  be  unconstitutional." 

In  this  way  the  legislature  of  the  state  wields  the  club  over 
the  unwilling  employer.  The  problem  remains :  how  to  apply 
this  gentle  persuasive  power  to  the  employee  as  well?  It 
is  significant  that  it  was  considered  necessary  to  use  such 
persuasive  power  at  least  in  a  few  states,  that  some  dissatis- 
faction with  the  compensation  plan  on  the  side  of  the  work- 
ingman  was  expected.  For  to  permit  the  workingman  the 
selection  from  the  two  methods,  that  of  employer's  liability 
strengthened  through  the  abolition  of  the  three  defenses  with 
the  possibility  of  unlimited  damages  from  a  sympathetic  jury, 


AMERICAN  COMPENSATION  LEGISLATION    177 

and  the  limited,  sometimes  very  much  limited,  compensation 
scale,  might  have  tempted  many  a  workingman  and  proved 
rather  dangerous  to  the  employer's  interests. 

This  is  usually  met  by  limiting  the  abolition  of  defenses 
only  to  those  cases  where  the  employer  refuses  the  compensa- 
tion scale ;  and  as  to  the  employee,  he  has  only  his  choice  left 
between  the  compensation  system  and  the  older  liability  pro- 
visions. To  make  this  complicated  situation  somewhat  more 
lucid,  the  following  schematic  presentation  may  perhaps  be 
found  useful.  There  are  three  possible  situations  in  the  re- 
lations between  employer  and  employee  in  case  of  an  injury. 

1.  Old  employer's  liability. 

2.  New  strengthened  employer's  liability   (defenses   abol- 
ished). 

3.  A  compensation  plan. 

The  employer  is  permitted  to  select  between  situations  2 
and  3.  The  employee,  however,  is  only  permitted  to  select  be- 
tween 1  and  3.  If  both  agree  upon  3, — well  and  good.  If 
employer  agrees  to  accept  3,  but  employee  declines,  then  situa- 
tion 1  remains  in  force.  It  is  assumed,  and  correctly,  that 
situation  3  is  more  advantageous  to  the  worker  than  1,  and  so 
his  choice  is  practically  decided  for  him.  It  is  also  assumed 
that  employer  will  select  3  because  it  is  more  advantageous 
than  2.  The  choice  between  2  and  3  is  not  offered  to  the 
workman  for  fear  he  might  decide  against  compensation. 
Perhaps  the  only  exception  was  in  California,  under  the 
older  act,  where  the  employee's  selection  was  also  between 
2  and  3,  i.e.,  increased  liability  has  substituted  the  old  liability 
conditions,  and  the  selection  for  both  was  between  that  in- 
creased liability  and  compensation. 

But  in  actual  practice  the  difference  is  of  little  impor- 
tance. 

The  employer  who  decides  to  select  either  one  of  the  two 
plans,  can  simply  enforce  it  as  a  condition  of  employment  upon 
all  workers  and  settle  the  matter  therewith.  For  this  reason 
the  employee's  right  of  election  is  largely  fictitious.  In 
short,  the  choice  with  the  employer  is  so  far  as  there  is  free 
choice. 

The  entire  structure  of  this  elective  system  is,  in  Professor 
Freund's  opinion,  "  conceded  to  be  a  piece  of  legislative 
trickery;  it  must  confuse  the  common  sense  of  right  and 


178  SOCIAL  INSURANCE 

wrong;  and  it  makes  a  mischievous  precedent  which,  in  time 
to  come,  will  give  trouble  to  those  who  invented  it. " 2 

The  avowed  object  was  to  force  compensation;  and  at  the 
same  time  to  avoid  constitutional  difficulties.  To  accomplish 
this  object,  to  force  into  compensation  not  only  those  em- 
ployers who  consciously,  and  after  deliberation,  decide  to  elect 
compensation  rather  than  increased  liability,  but  also  those 
employers  (the  vast  majority  necessarily)  who  are  neither 
able  nor  willing  to  form  their  own  independent  judgment  in 
this  complicated  problem,  the  additional  method  of  presump- 
tion in  favor  of  compensation  is  used  in  most  states,  and  a 
formal  written  statement  to  be  filed  with  proper  authority 
is  required  in  case  the  employer  elects  not  to  come  under 
the  compensation  law,  while,  in  a  few  states,  the  method  is 
just  the  opposite,  and  a  written  notice  of  selection  of  the 
compensation  plan  required.  As  far  as  the  employee  is  con- 
cerned the  presumption  of  acceptance  holds  in  all  cases. 

In  view  of  the  fact  that  this  complex  and  somewhat  undig- 
nified method  was  forced  by  constitutional  considerations,  it  is 
interesting  to  note  that  such  a  high  constitutional  authority 
as  Professor  Freund  finds  many  constitutional  flaws  in 
this  plan.  But  since  the  law  of  Wisconsin  was  declared  con- 
stitutional in  November,  1911,  there  is  a  general  consensus 
of  opinion  that  no  further  difficulties  need  to  be  expected  on 
that  ground. 

While  constituting  an  ingenious  and,  perhaps,  inevitable 
makeshift,  the  elective  plan  has  had  very  unsatisfactory  re- 
sults, and  the  question  will  never  be  settled  permanently  until 
it  shall  vanish,  giving  place  to  compulsory  compensation. 

The  first  serious  objection  to  the  elective  system  is  that  it 
often  fails  to  accomplish  the  necessary  results,  i.e.,  to  sub- 
stitute compensation  for  liability.  While  detailed  statistical 
information  for  most  states  is  as  yet  unavailable,  it  is  never- 
theless known  in  a  general  way  that  the  compensation  plan 
has  been  agreed  to  by  a  larger  majority  of  employers  in  New 
Jersey,  Illinois,  Massachusetts,  and  Michigan,  but  much  less 
so  in  California,  in  Wisconsin,  Kansas,  New  Hampshire,  and 
Ohio.  Especially  in  the  latter  state,  industrially  one  of  the 
most  important  states  in  the  Union,  the  results  of  the  elective 

*  Ernest  Freund,  in  American  Labor  Legislation  Review,  Vol.  II,  No.  1, 
p.  53. 


AMERICAN  COMPENSATION  LEGISLATION    179 

law  were  insignificant  under  the  old  act  of  1911.  It  was  stated 
that  only  about  150  employers  had  decided  to  join  that  state 
fund,  and  in  this  way  accepted  compensation. 

What  is  the  explanation  for  this  marked  difference  in  the 
results  of  the  elective  system  between  state  and  state?  It  is 
pointed  out  that  in  New  Jersey  the  presumption  is  that 
the  compensation  law  has  been  accepted  unless  there  is  a 
specific  statement  to  the  contrary.  As  a  large  number  of 
employers  are  not  sufficiently  interested  in  the  matter,  or 
not  familiar  enough  with  its  various  aspects,  to  make  an 
independent  deliberate  choice,  that  action  which  has  the  ad- 
vantage of  presumption  will  be  the  popular  one.  Undoubtedly 
that  is  a  valid  argument,  but  it  does  not  furnish  the  com- 
plete reply  to  the  query. 

And  for  this  reason :  comparatively  few  employers  at  present 
are  willing  to  carry  their  own  risk.  They  are  forced  to  carry 
insurance  to  protect  them  against  the  risk  of  accidents.  When 
a  choice  between  two  forms  of  liability  offers  itself,  the  in- 
surance company  is  forced  to  quote  rates  on  both.  The 
probable  cost  of  liability  and  compensation  being  different, 
the  rates  must  necessarily  be  different.  Thus  the  necessity 
of  making  a  decision  is  forced  upon  the  employer. 

If  the  insurance  company  quotes  a  lower  rate  for  compen- 
sation than  for  employer's  liability,  the  average  employer  is 
inclined  to  be  charitable,  fully  agrees  to  the  advantages  of 
compensation,  and  elects  it.  If,  on  the  other  hand,  the  liability 
rate  is  lower  than  the  compensation  rate,  why — then  charitable 
instinct  yields  to  il  sound  business  policy." 

That  is  all  there  is  to  it.  It  may  sound  like  a  very  severe 
arraignment  of  the  American  employer,  but  that  is  exactly 
what  happened.  In  New  Jersey  and  Illinois  the  insurance 
companies  quoted  the  same  rates  in  liability  and  compensa- 
tion. Considering  that  the  liability  rates  usually  protect  the 
employers  only  up  to  $5,000  on  any  one  injured,  and  up  to 
$10,000  for  all  the  possible  results  of  any  one  accident,  that 
material  increases  of  the  rates  are  made  for  additional  cover- 
age, and  that  liability  awards,  not  infrequently,  are  higher 
than  that,  this  equality  of  rates  really  means  that  compensation 
is  cheaper  than  liability.  For  this  reason  compensation  in  these 
two  states  was  a  success.  In  Wisconsin  and  New  Hampshire 
the  liability  companies  quoted  very  much  higher  rates  for 


180  SOCIAL  INSURANCE 

compensation  than  for  liability,  and  compensation  was,  com- 
paratively, a  failure. 

Thus,  the  very  serious  situation  has  developed  that  the  degree 
of  success  of  the  elective  compensation  law  depends  largely 
upon  the  judgment  of  the  insurance  companies.  It  is  not  at 
all  necessary  to  assume  that  the  liability  companies  have  pur- 
posely raised  the  compensation  rates  in  order  to  "  kill  com- 
pensation." Their  action  in  New  Jersey  and  Illinois  would 
disprove  such  an  accusation.  Whatever  the  attitude  may  have 
been  in  the  beginning,  better  understanding  of  the  advantages 
of  the  compensation  system,  from  an  insurance  point  of  view, 
has  influenced  the  casualty  companies  to  go  unequivocally  on 
record  as  in  favor  of  compensation. 

Nevertheless,  the  situation  should  not  have  been  such  as 
to  place  the  fate  of  compensation  in  their  hands.  Their  judg- 
ment as  to  comparative  cost  of  both  systems  in  the  future  is,  at 
best,  an  estimate  only,  an  intelligent  estimate  though  it  be, 
for  no  thorough  investigation  as  to  probable  cost  of  com- 
pensation has  ever  been  undertaken  in  the  United  States,  and 
the  natural  fear  of  an  unknown,  untried  situation  may  be 
responsible  for  an  increase  of  compensation  insurance  rates, 
this  nullifying  the  intent  of  an  elective  act. 

Furthermore,  the  elective  system  of  compensation  has  had 
a  very  serious  and  detrimental  influence  upon  the  quality  of 
the  compensation  legislation.  If  compensation  is  to  be  realized 
only  by  the  free  choice  of  the  employer,  as  the  lesser  of  two 
evils,  it  necessarily  follows  that  compensation  must  be  made 
cheaper  than  liability.  That  purpose,  however,  can  be  accom- 
plished in  one  way  only.  Cheap  compensation  is  poor,  in- 
sufficient compensation.  If  compensation  is  becoming  suc- 
cessful in  New  Jersey,  Illinois,  or  Massachusetts  it  is  only 
because  it  is  a  very  poor  sort  of  compensation.  Many  influ- 
ences are  at  force,  to  be  sure,  to  make  the  American  standard 
of  compensation  a  very  unsatisfactory  one,  and  the  timidity 
of  the  wage- workers  in  fighting  for  a  better  standard  is  one  of 
the  causes.  But  to  these  normal  causes  which  were  present 
everywhere  has  been  added  a  very  powerful  one — the  neces- 
sity of  making  the  compensation  system  sufficiently  attractive 
to  the  individual  employer  so  that  he  will  be  willing  of  his 
free  choice  to  abandon  the  liability  situation. 

Several  of  the  states  enumerated,  California  and  Wisconsin 


AMERICAN  COMPENSATION  LEGISLATION    181 

among  the  earliest,  have  embodied  in  their  elective  acts  com- 
pulsory provisions  where  the  state  itself  or  any  of  its  political 
subdivisions  is  the  employer.  As  the  Wisconsin  commission 
stated,  as  to  the  right  of  the  legislature  to  make  an  act 
compulsory  as  to  the  state  and  its  subdivisions,  there  is  little 
doubt ;  that  it  should  be  done,  is  recognized  by  all.  It  is  rather 
surprising  that  not  all  the  states  should  have  felt  the  obliga- 
tion. Outside  of  these  provisions,  the  only  acts  providing 
compulsory  compensation  outside  of  state  insurance,  of  which 
more  will  be  said  presently,  are:  that  of  Nevada  passed,  by 
a  curious  coincidence,  the  same  day  the  New  York  decision  was 
rendered,  and  the  later  act  of  California  passed  after  a  con- 
stitutional amendment. 

In  order  that  compulsory  compensation  may  be  substituted 
for  the  present  prevailing  elective  plan,  the  constitutional 
difficulties  must  be  overcome  in  one  of  the  following  three 
ways: 

1.  By  disregarding  them,  or  what  amounts  to  the  same  thing, 
by  a  more  liberal  interpretation  of  the  state  constitution  by 
the  state  court,  since  there  was  such  a  general  dissatisfaction 
with  the  New  York  decision.    As  yet,  however,  Nevada  is  the 
only  state  which  has  dared  to  take  the  step,  and  even  Nevada 
returned  to  the  elective  system  through  its  later  act  of  1913. 

2.  The  road  is,  after  all,  open  to  constitutional  amendment, 
which,  for  states,  is  by  far  not  as  difficult  as  it  is  for  the 
Union.    California  and  Ohio  have  already  had  constitutional 
amendments  passed  dealing  with  the  compensation  problem, 
and  in  New  York  the  amendment,  having  twice  passed  the 
legislature,  awaits  at  this  writing  the  popular  sanction  at  the 
1913  election.    In  fact,  in  the  latter  state,  those  who  advocated 
the  constitutional  amendment  have  at  the  same  time  used 
their  influence  rather  in  opposition  to  an  elective  law,  in  fear 
that  such  an  act  might  delay  the  success  of  the  constitutional 
amendment,  and  a  more  satisfactory  act. 

It  is  true  that,  from  the  point  of  view  of  the  Ives  decision, 
an  amendment  to  the  state  constitution  does  not  quite  settle 
the  matter,  since,  in  the  opinion  of  the  New  York  Court  of 
Appeals,  compulsory  compensation  is  incompatible  with  the 
Federal  Constitution  as  well.  However,  it  is  not  generally 
feared  that  the  United  States  Supreme  Court  is  likely  to  share 
in  that  view,  in  the  face  of  the  almost  universal  demand  for 


182  SOCIAL  INSURANCE 

compensation  legislation.  And  it  is  highly  significant  that  a 
Compensation  Bill  for  Interstate  Commerce  Employees,  com- 
pulsory in  character,  was  introduced  by  the  Federal  Compen- 
sation Commission,  has  passed  both  houses  of  Congress,  though 
in  somewhat  different  form,  and  is  generally  expected  to  be- 
come a  law  in  the  dim  future. 

3.  Finally,  the  third  alternative  is  open  to  the  states  to 
follow  the  Washington,  or  some  similar  plan  of  straight  state 
insurance,  as  a  method  of  avoiding  the  constitutional  pitfalls. 

For  as  far  back  as  1910,  when  the  problem  of  possible  con- 
stitutional difficulties  had  just  arisen,  Mr.  M.  M.  Dawson  (at 
the  Atlantic  City  Conference)  argued  that  "  the  thing  which 
is  to  most  minds  most  radical  and  most  revolutionary  would  be 
the  least  objectionable  from  a  constitutional  standpoint,  and 
that  is  state  insurance,  improbable  as  it  is  that  any  such 
system  will  be  introduced. ' '  He  based  this  argument  upon  the 
consideration  that  "  there  are  no  restrictions  upon  the  taxing 
powers  of  our  states. "  The  state  of  Washington  was  the  first 
to  apply  this  principle,  by  establishing  compulsory  compensa- 
tion through  a  state  accident  insurance  fund,  and  since  then 
Ohio  has  followed,  in  1913. 

If  the  year  1910  was  marked  primarily  by  propaganda  of  the 
basic  concept  of  accident  compensation,  and  in  1911  the  consti- 
tutional questions  loomed  in  the  foreground,  resulting  in  the 
evolution  of  the  elective  plan,  the  last  two  years  were  prima- 
rily devoted  to  the  discussion  of  the  insurance  features  of 
the  compensation  system.  A  very  strong  emphasis,  perhaps 
out  of  proportion  to  its  actual  social  significance,  was  given 
to  the  question  of  insurance  organization,  to  the  disregard  of 
other  more  important  aspects  of  the  laws.  An  explanation  of 
this  may  be  found  in  the  tremendous  development  of  liability 
insurance  in  this  country,  representing  a  business  with  a 
volume  of  hundreds  of  millions  of  dollars  annually.  While 
there  is  not  very  much  uniformity  in  the  twenty-four  acts 
passed,  the  variety  is  perhaps  greatest  in  regard  to  the  organ- 
ization of  the  insurance.  Practically  all  the  plans  known  in 
Europe  have  already  been  introduced  here,  and  many  new 
plans  evolved.  Here,  as  in  Europe,  two  different  lines  may 
be  found,  namely,  between  compulsory  and  optional  insurance, 
and  between  state  and  private  insurance.  The  various  com- 
binations have  given  rise  to  the  following  types: 


AMERICAN  COMPENSATION  LEGISLATION    183 

1.  The  New  Jersey  type — insurance  altogether  optional  and 
private   (as  in  England).     This  plan  has  been  followed  in 
Kansas,  California  (under  the  act  of  1911),  New  Hampshire, 
Wisconsin,   Illinois,  Arizona,  Rhode  Island,  Minnesota,   Ne- 
braska, Connecticut.    This  is,  therefore,  the  most  popular  plan 
as  yet.     But  it  is  rapidly  becoming  obsolete,  as  the  necessity 
of  creating  a  satisfactory  guarantee  is  rapidly  becoming  evi- 
dent.    Under  the   recent   act   of   California  insurance   still 
remains  voluntary,  but  a  state  fund  is  created  to  compete 
with  private  casualty  companies. 

2.  Compulsory  insurance  is  fast  gaining  in  popularity,  not- 
withstanding the  tremendous  difficulty  that  the  compensation 
acts  themselves  are  not  compulsory.    With  this  qualification  in 
mind,  compulsory  insurance  simply  means  that  the  obligation 
to  insure  follows  the  election  of  the  compensation  plan.    An 
employer  may  prefer  liability  and  remain  uninsured,  but  must 
insure  if  he  elects  to  come  under  the  compensation  act.    This 
is  known  in  Europe  as  Versicherungszwang — obligation  to  in- 
sure, with  freedom  of  choice  as  to  the  insurance  institution. 
The  selection  may  be  exclusively  between  casualty  companies, 
voluntary  or  mutual  associations,  as  in  Iowa,  between  these 
and  one  large  mutual  employers'  association  specially  organ- 
ized under  the  supervision  and  protection  of  the  state  (the 
Massachusetts  plan,  also  followed  by  Texas),  or  between  private 
or  mutual  companies,  and  a  special  state  insurance  fund  di- 
rectly managed  by  the  state  (as  in  Michigan,  and  as  provided 
in  the  New  York  bill,  passed  by  the  legislature,  but  vetoed 
by  Governor  Sulzer  in  May,  1913).    In  all  these  types  "  self- 
insurance  "    (a  euphonious   designation  for  non-insurance), 
may  be  permitted  upon  sufficient  evidence  of  financial  respon- 
sibility presented  to  the  state  authorities. 

Thus,  we  see  vestiges  of  state  insurance  in  Michigan,  and  in 
a  modified  form  in  Massachusetts  and  Texas.  But  it  is  not  in 
these  states  that  the  problem  of  state  insurance  loomed  largely 
to  the  foreground,  since  freedom  of  choice  is  permitted. 

3.  In  several  states,  though  the  compensation  law  is  elective, 
there  is  within  the  limits  of  the  act,  not  only  Versicherungs- 
zwang, but  true  Zwangversicherung,   i.e.,  the  election  of  the 
act  carries  with  it  the  obligation  to  insure  in  a  definite  state 
insurance  fund.    That  is  the  so-called  Ohio  plan  (under  the 
old  law),   followed  by  the  recent  acts  in  West  Virginia, 


184  SOCIAL  INSURANCE 

Oregon,  and  Nevada.  The  only  way  the  employer  can  stay 
out  of  state  insurance  is  by  staying  out  of  the  compensation 
system. 

4.  And,  finally,  there  is  the  straight  compulsory  state  insur- 
ance under  a  compulsory  compensation  law — the  so-called 
Washington  plan  (1911),  followed  by  Ohio  (1913). 

Thus,  a  bewildering  array  of  different  plans  is  presented,  as 
there  are  practically  six  different  systems  already,  with  the 
possibility  of  different  combinations  in  the  future,  as  the  appli- 
cation of  the  German  system,  advocated  by  some,  still  awaits 
its  chance. 

The  phenomenally  rapid  growth  of  the  state  insurance 
systems  is  the  distinctive  feature  of  this  development.  Within 
less  than  two  years  Washington,  Ohio,  Nevada,  Michigan, 
West  Virginia,  and  California  have  adopted  it,  and  Massa- 
chusetts and  Texas  in  a  modified  form.  It  is  often  repre- 
sented as  the  imitation  of  European  precedents,  though  as  a 
matter  of  fact,  there  is  already  more  straight  state  insurance 
against  industrial  accidents  in  the  United  States  than  in  the 
whole  of  Europe,  where  the  predominating  type  is  the  com- 
pulsory employers '  association,  and  not  the  bureaucratic  state 
insurance  fund. 

The  tremendous  development  of  liability  insurance  in  the 
United  States  (with  its  annual  premium  income  of  nearly 
$100,000,000)  naturally  made  the  question  of  state  insurance, 
especially  of  compulsory  and  exclusive  state  insurance,  one  of 
bitter  controversy,  which  waged  primarily  about  the  results  of 
the  Washington  system. 

The  old  Ohio  plan  of  1911,  with  its  peculiar  combination 
of  elective  compensation  with  compulsory  state  insurance  (fol- 
lowed by  the  acts  of  Oregon  and  West  Virginia  not  yet  in 
effect),  was  doomed  to  hopeless  failure.  A  choice  was  left  to 
the  employers  as  between  compensation  with  state  insurance, 
and  liability  with  the  defenses  taken  away.  The  employer 
could  insure  with  private  liability  companies  as  before.  The 
results  were  very  unfortunate.  Liability  companies  were  by 
the  very  act  prevented  from  accepting  compensation,  and 
were  forced  to  fight  it  with  a  large  army  of  insurance  agents 
and  brokers,  with  the  result  that  the  state  insurance  fund 
remained  a  dismal  failure,  and  with  it  the  elective  compensa- 
tion law,  until  substituted  by  compulsory  compensation  with 


AMERICAN  COMPENSATION  LEGISLATION    185 

compulsory  state  insurance,  made  possible  by  a  constitutional 
amendment. 

The  Washington  plan  was  the  boldest  step  towards  state 
insurance,  the  boldest  overthrow  of  traditional  precedents,  and 
it  was  made  the  subject  of  the  most  bitter  attacks. 

The  act  is  limited  to  hazardous  occupations,  and  in  this 
limitation  was  found  the  justification  for  this  radical  exercise 
of  police  powers.  The  state  has  undertaken  the  whole  admin- 
istration of  the  compensation  system.  It  pays  the  compensa- 
tion out  of  a  fund  which  is  built  up  by  collection  of  con- 
tributions, premiums,  or  taxes  from  the  employer  covered 
by  the  law,  according  to  a  schedule  contained  in  the  law, 
from  which  variations  downwards  are  permitted.  The  system 
might  be  described  as  a  hybrid  between  the  Norwegian  State 
Insurance  System  and  the  German  Mutual  Employers'  Sys- 
tem ;  for,  on  one  hand,  the  state  administers  the  fund  through 
an  Industrial  Insurance  Commission,  without  any  direct  par- 
ticipation of  the  insured,  and  on  the  other,  it  is  an  assess- 
ment system  pure  and  simple,  the  state  treasury  not  assuming 
any  responsibility  for  any  deficits.  The  resemblance  to  the 
German  system  is  increased  by  the  division  of  the  fund  into 
forty-seven  subsidiary  funds  according  to  industrial  groups, 
each  being  financially  independent. 

In  this  last  feature  was  found  the  most  sensitive  point  of 
attack  upon  the  Washington  system.  With  the  limited  extent 
of  industrial  development  in  Washington,  this  division  into 
forty-seven  groups  left  some  of  them  extremely  small,  cer- 
tainly too  small  for  a  fair  display  of  the  principle  of  loss 
distribution.  Fate  was  unkind  to  the  Washington  plan,  in 
causing  a  tremendous  disaster  (an  explosion  with  many  fatal- 
ities) in  one  of  the  weakest  of  these  funds,  that  of  powder 
factories.  The  difficulties  following  the  insolvency  of  that  one 
small  fund  were  made  a  good  deal  of  by  the  critics  of  the 
Washington  law,  who  refused  to  admit  that  a  slight  defect 
in  detail,  and  not  the  basis  of  the  system,  was  really  at  fault. 

It  is  very  significant  that  the  more  recent  acts  of  the  Wash- 
ington type  (Ohio,  Oregon,  etc.)  have  already  discovered  a 
method  of  meeting  this  difficulty  by  providing  one  general 
reserve  or  reinsurance  fund,  from  which  all  other  funds  may 
be  subsidized. 

The  sudden  growth  of  the  sentiment  in  favor  of  state  insur- 


186  SOCIAL  INSURANCE 

ance  since  1911,  surpassed  the  hopes  of  its  most  enthusiastic 
adherents.  In  many  states  the  battle  during  the  legislative 
period  of  1913  was  mainly  between  state  insurance  and  the 
casualty  companies.  Nowhere  was  the  battle  so  sharp  as  in 
New  York,  and  the  influence  of  the  state  insurance  principle 
was  so  strong  that  it  was  admitted  by  its  opponents  as  one  of 
the  methods  of  insurance  (as  in  Michigan),  while  the  other 
side,  mainly  represented  by  the  State  Federation  of  Labor, 
refused  to  accept  anything  less  than  an  exclusive  system  of 
compulsory  state  insurance.  The  act  passed  by  the  legislature 
was  of  the  Michigan  type,  but  was  promptly  vetoed  by  the 
governor,  with  the  intimation  that  only  a  state  insurance  plan 
would  be  acceptable. 

Naturally,  the  question  arises,  what  is  responsible  for  this 
sudden  popularity  of  state  insurance,  which  three  or  four 
years  ago  would  have  been  rejected  by  the  majority  of  em- 
ployers and  employees  alike,  as  rank  state  socialism  ?  On  the 
one  hand  is  the  very  bitter  feeling  of  the  workingman  against 
the  results  of  the  old  liability  system,  and  the  methods  of  the 
old  liability  adjuster.  But  among  employers,  too,  a  good  deal 
of  enthusiasm,  or  at  least,  tolerance  for  state  insurance  may  be 
found.  Theirs  was  the  growing  hope  that  state  insurance 
presented  a  method  of  reducing  the  cost  of  compensation 
insurance.  It  is  quite  characteristic  that  this  feeling  did  not 
develop  in  many  cases  until  some  compensation  laws  went  into 
effect  and  the  new  rates  of  compensation  insurance  were  pub- 
lished. The  same  consideration  explains  the  enthusiasm  for 
the  Massachusetts  plan,  also  often  spoken  of  as  a  state  in- 
surance system.  There  the  Mutual  Employers'  Association  is 
state  controlled,  and  has  the  stamp  of  government  approval, 
but  no  financial  subsidy.  Liability  companies  are  permitted 
to  write  compensation  insurance,  but  under  state  control  of 
rates.  As  yet  the  control  seems  to  be  used  so  as  to  keep  the 
rates  up  and  prevent  competition  disastrous  to  the  Mutual, 
rather  than  to  cheapen  insurance,  while  the  Mutual  faithfully 
imitates  the  rates  of  private  casualty  companies. 

It  is  decidedly  unfortunate  that  as  yet  the  comparatively 
unimportant  question  of  comparative  advantages  of  various 
forms  of  insurance  has  obscured  all  other  problems  of  com- 
pensation. As  yet  the  accumulated  experience  with  state  in- 
surance in  the  United  States  is  too  slight  to  permit  of  a 


AMERICAN  COMPENSATION  LEGISLATION    187 

definite  judgment  as  to  the  practical  advantages  on  Amer- 
ican soil.  The  experience  in  Washington  is  as  yet  the  only 
one  from  which  some  conclusions  may  be  deducted.  Prepos- 
terous charges  are  made  against  the  Washington  system  by 
opponents  of  state  insurance.  The  fact  must  be  admitted  that 
its  commission  went  through  its  first  year's  work  with  a 
praiseworthy  efficiency  and  economy,  its  accounts  showing  an 
expense  ratio  of  less  than  ten  per  cent,  of  the  premiums 
received.  The  greatest  element  of  economy  in  a  state  insurance 
fund  seems  to  be  the  elimination  of  the  middleman's  com- 
missions. On  the  other  hand,  it  is  somewhat  difficult  to  disre- 
gard entirely  the  wasteful  character  of  a  state  enterprise 
under  the  present  character  of  state  service  but  seldom  pro- 
tected by  any  guarantees  of  civil  service.  And  it  seems 
plausible  that  a  freedom  of  choice  between  stock  casualty 
companies,  mutual  associations,  and  state  insurance  funds 
might,  within  the  next  few  years,  prove  the  comparative  ad- 
vantages of  each  form.  European  experience  has  conclu- 
sively shown  that  when  such  competition  is  permitted,  mutual 
associations  slowly  but  inevitably  grow  at  the  expense  of  all 
other  insurance  institutions. 

In  any  case,  while  the  exaggerated  charges  against  the 
dangers  of  state  insurance  clearly  disclose  their  biased  origin, 
the  claims  of  the  advantages  of  a  bureaucratic  state  insurance 
system  are  no  less  misleading. 

After  all,  the  organization  of  the  insurance  system  only 
influences  the  mode  of  paying  compensation.  From  the  work- 
ingman's  point  of  view,  and  that  is  the  only  social  point  of 
view  from  which  compensation  can  be  considered,  the  essen- 
tial question  is — How  much  compensation  shall  be  paid?  If 
the  various  systems  of  insurance  are  to  be  compared  because 
of  the  comparative  cost  (as  influenced  primarily  by  the  ex- 
pense of  administration),  that  is  a  problem  for  the  employer 
and  not  the  employee. 

The  argument  for  state  insurance  would  be  much  more  con- 
vincing if  its  effect  were  to  make  the  treatment  of  the  wage- 
worker  more  liberal,  but  as  to  that  the  administration  of  the 
state  insurance  system  offers  no  support  as  yet,  for  the  scale 
of  reward  in  Washington  is  as  unsatisfactory  as  in  other  states. 


CHAPTER  XII 
A  CRITICISM  OF  AMERICAN  COMPENSATION  LAWS 

THE  average  reader,  without  legal  training,  has  very  little 
patience  for  details  of  legislation.  Public  opinion  pronounces 
laws  "  good  "  or  "  bad,"  according  to  their  general  intent, 
and  not  after  a  painstaking  study  of  sections  and  articles,  or  a 
careful  scrutiny  for  jokers.  Evidently  no  other  course  is 
open  to  "  public  opinion,"  which  is  called  upon  to  express 
itself  upon  such  a  multitude  of  issues  and  in  such  rapid  suc- 
cession. 

But  it  is  equally  obvious  how  easily  public  opinion  may 
be  misled,  just  for  these  reasons;  and,  perhaps,  there  is  no 
other  field  of  legislation  in  which  a  careful  scrutiny  is  more 
necessary,  in  which  the  general  intent  of  the  law  is  so  often 
handicapped  or  altogether  nullified,  as  in  the  field  of  labor 
legislation.  For  this  is  the  special  field  in  which  a  desire  to 
do  as  little  as  possible  has  always  been  combined  with  the 
necessity  of  seeming  to  do  as  much  as  possible. 

There  is  no  intention  here  to  insinuate  that  this  desire 
prompted  all  who  favored  compensation  in  this  country. 
There  is  absolutely  no  doubt  of  the  very  effective  presence  of 
many  sincere  workers  who  aimed  for  the  best  social  results 
only.  But  it  is  doubtful  whether  they  alone  could  have 
accomplished  all  that  was  accomplished,  whether  they  dared 
to  ask  for  all  they  hoped  for,  whether  they  really  dared  to 
hope  for  what  is  just  and  socially  necessary  in  every  compen- 
sation act. 

The  very  elective  character  of  the  acts,  as  already  ex- 
plained, was  a  very  strong  influence  to  make  compensation 
cheap,  and,  therefore,  insufficient.  But  even  outside  of  this 
factor,  the  pressure  of  the  employers  upon  legislation  was 
always  in  the  same  direction.  An  additional  factor  was  a 
deplorable  lack  of  familiarity  with  the  problems  of  compensa- 
tion and  the  well-recognized  methods  of  meeting  them,  such  as 

188 


A  CRITICISM  OF  COMPENSATION  LAWS      189 

Europe 's  twenty-five  years  of  experience  have  elaborated,  and 
a  somewhat  childish  preference  for  home-made  plans  to  imita- 
tions of  European  systems. 

During  the  last  two  or  three  years  the  education  of  legis- 
lators has  been  progressing  very  favorably.  In  the  later  acts 
a  good  deal  more  study  of  European  legislation  is  noticeable, 
very  much  to  the  advantage  of  these  acts.  But  even  in  the 
latest  acts,  grossest  errors  of  careless  legislative  drafting  may 
be  found.  As  there  are  still  some  thirty  states  without  any 
compensation  acts,  and  as  even  in  the  more  fortunate  states  a 
careful  revision  of  the  acts  passed  may  be  expected  (in  fact, 
in  three  or  four  has  already  taken  place),  and  as  the  matter 
of  compensation  laws  must  agitate  public  opinion  for  some 
years  to  come,  it  seems  worth  while  to  go  into  the  details  of 
the  acts  as  passed,  and  the  errors  of  omission  or  commission 
found  in  these  acts. 

In  regard  to  the  extent  of  the  application  of  the  law,  the 
situation  is  rather  favorable,  perhaps,  because  the  American 
acts  were  passed  at  a  late  day,  when  there  was  nothing  of  the 
nature  of  the  experiment  about  them.  Besides,  the  unfortu- 
nate fate  of  the  New  York  act  seems  to  have  exercised  a 
beneficent  effect  upon  this  aspect  of  the  problem.  For,  as  the 
extremely  narrow  limit  of  that  act  did  not  save  it  from  being 
declared  unconstitutional,  nothing  was  to  be  gained  by  such 
limitation.  Of  the  twenty  acts  passed,  more  than  one-half 
include  all  employments,  except  domestic  service,  farm  labor, 
and  casual  labor,  and,  in  view  of  constitutional  difficulties, 
interstate  railroad  labor  (Connecticut,  Massachusetts,  Cali- 
fornia, Michigan,  Iowa,  Nebraska,  Nevada,  Minnesota,  West 
Virginia,  and  Texas),  and  in  one  or  two  (New  Jersey)  even 
agriculture  and  domestic  labor  are  covered. 

In  many  other  states  (Arizona,  Illinois,  Kansas,  Oregon, 
New  Hampshire,  and  Washington)  the  concept  of  special 
hazard  has  been  incorporated,  and  the  extent  of  application 
of  the  law  is  definitely  prescribed,  though  perhaps  not  within 
very  narrow  limits  for  most  of  these  states.  Transportation, 
building  and  construction,  mining  and  factories  and  mills  are 
covered  in  most  of  these  acts.  The  least  satisfactory  is  the 
list  of  occupations  enumerated  in  the  New  Hampshire  act, 
where  work  in  factories  is  included  only  in  so  far  as  it  is 
in  proximity  to  hoisting  apparatus  or  power-driven  machin- 


190  SOCIAL  INSURANCE 

ery.  Though  the  Washington  act,  and  following  it,  those  of 
Oregon  and  West  Virginia,  are  ostensibly  limited  to  extra- 
hazardous  occupations  only  (plainly  for  constitutional  rea- 
sons, as  all  these  acts  provide  for  state  insurance),  yet  the 
definition  of  the  extra  hazard  is  rather  liberal,  inasmuch  as 
all  mills  and  factories  are  included. 

It  is  almost  astonishing  to  find  that  labor  organizations 
fight  for  bills  containing  such  restrictions,  as  the  New  York 
State  Federation  of  Labor  has  recently  done,  in  advocating 
a  bill  which  does  not  apply  to  all  wage-workers.  Perhaps 
the  only  explanation  which  suggests  itself — and  that  is  not  a 
very  charitable  one — is  that  many  conservative  American  trade 
unions  are  utterly  indifferent  to  the  interests  of  the  unskilled 
and  unorganized  workingmen. 

In  several  states  limitations  based  upon  the  number  of  em- 
ployees in  the  establishment  have  been  incorporated  in  the 
acts.  This  is  a  feature  more  objectionable  than  distinctions 
based  upon  hazard.  The  original  act  of  Kansas  excepted 
establishments  with  less  than  fifteen  persons  regularly  em- 
ployed ;  Connecticut,  Nebraska,  Texas,  Ohio,  and  New  Hamp- 
shire as  well  as  Kansas,  under  the  new  law,  those  with  less 
than  five;  Wisconsin,  less  than  four,  and  Nevada  less  than 
two.  Of  course,  it  is  difficult  to  speak  definitely  of  such 
limitations  where  the  acts  are  elective,  when  no  employer  is 
compelled  to  adopt  the  compensation  system,  and  no  employer 
prohibited  from  adopting  it  if  he  wishes.  The  limitation 
simply  means  that  (with  the  exception  of  two  states,  Washing- 
ton and  Ohio)  the  coercive  features,  such  as  the  denial  of  the 
defenses,  are  not  made  applicable  to  these  small  employers. 
These  limitations  sacrifice  the  workman  to  the  misguided 
social  ideal  of  protecting  petty  industry — an  ideal  perhaps 
more  hopeless  in  this  country  than  in  any  other.  Of  course, 
these  limitations  are  not  very  serious,  because  they  cannot 
remain  permanent.  After  the  industrial  population  has  once 
adapted  itself  to  these  compensation  systems,  further  exten- 
sion is  reasonably  sure  to  come.  Opposition  may  probably  be 
expected  only  in  two  lines  of  remunerative  employment — 
agriculture  and  domestic  service — where  the  concept  of  liabil- 
ity has  not  become  familiar.  In  New  Jersey,  for  instance,  after 
a  very  short  experience  with  the  compensation  act,  a  move- 
ment has  developed  for  exclusion  of  these  two  wage-groups 


A  CRITICISM  OF  COMPENSATION  LAWS      191 

upon  the  plea  that  neither  the  small  farmer  nor  the  ordinary 
employer  of  a  domestic  servant  is  in  a  position  to  suffer 
the  possible  cost  of  compensation.  But  even  though  this  argu- 
ment discloses  the  vulnerable  point  of  a  system  of  voluntary 
insurance,  the  cost  of  insuring  one  or  two  employees  is  so 
slight  that  any  argument  of  financial  danger  to  the  employer 
falls  to  the  ground. 

Nor  has  the  negligence  concept  been  entirely  eliminated. 
Perhaps  the  most  pernicious  example  of  this  is  found  in  the 
earliest  compensation  act,  that  passed  by  the  United  States 
Congress  for  some  employees  of  the  federal  service  in  1908. 
The  law  excludes  all  accidents  "  due  to  the  negligence  or 
misconduct  of  the  employee. "  It  is  somewhat  doubtful 
whether,  with  strict  adherence  to  scientific  accuracy,  an  act 
excluding  all  such  accidents  can  properly  come  under  the 
designation  of  a  compensation  act. 

In  the  New  York  act  the  limitation  was  not  so  severe  but 
extremely  hazy,  and  would  have  caused  a  good  deal  of  litiga- 
tion. In  several  states  the  English  formula  of  "  serious  and 
wilful  misconduct,"  or  simply  "  wilful  misconduct,"  has 
appeared  (California,  Massachusetts,  Michigan,  New  Hamp- 
shire, Wisconsin).  The  vicious  doctrine  of  penalizing  intoxi- 
cation to  the  point  of  denying  compensation  has  become  a 
characteristic  feature  of  American  acts;  it  is  to  be  found  in 
the  acts  of  Connecticut,  Iowa,  Minnesota,  New  Hampshire, 
New  Jersey,  Nevada,  and  West  Virginia — in  many  of  which 
states  prohibition  never  was  nor  is  likely  in  the  near  future 
to  become  popular.  And  only  in  Illinois,  Ohio,  Texas,  and 
Washington  are  all  injuries  except  those  intentionally  self- 
inflicted  compensated.  Even  in  the  proposed  constitutional 
amendment  in  New  York  this  vicious  concept  of  intoxication 
as  a  bar  to  compensation  has  forced  its  way. 

But  the  most  serious  criticism  must  be  directed  against  the 
scale  of  compensation  which  these  acts  establish.  It  is  particu- 
larly unfortunate  that  the  comparatively  unimportant  ques- 
tion of  the  organization  of  insurance  has  so  far  monopolized 
the  attention  of  all  parties  concerned  that  the  vastly  more 
important  question  of  a  proper  compensation  scale  has  been 
almost  neglected.  It  is  even  still  more  regrettable  that  even 
the  labor  organizations  have  frequently  asked  for  a  scale  of 
compensation  which  is  utterly  inadequate. 


192  SOCIAL  INSURANCE 

We  have  shown  in  a  previous  chapter  that  the  scale  of  com- 
pensation in  cases  of  temporary  disability  in  Europe  was 
either  50$  or  66  2-3$  of  the  wages,  with  the  larger  share 
predominating.  It  will  be  remembered  that  the  Netherlands 
have  made  it  70$,  and  the  Swiss  act,  the  latest  to  be  enacted, 
has  raised  it  to  80$.  The  consensus  of  opinion  of  all  students 
in  Europe  is  that  the  allowance  of  half  the  wages  is  not  suffi- 
cient to  really  compensate,  yet  of  the  20  states,  about  15 
have  adopted  the  50$  standard.  Washington,  which  is  quite 
proud  of  its  system  of  state  insurance,  does  not  do  very  much 
better  by  establishing  an  arbitrary  amount  of  $20  for  single 
wage-workers,  and  $25  to  $35  if  married,  especially  in  view 
of  the  higher  standard  of  wages  and  higher  cost  of  living  on 
the  Pacific  Coast.  On  the  other  hand,  Nevada  and  Texas 
grant  60$,  California  and  Wisconsin  65$,  and  Ohio  even 
66  2-3$.  Oregon  followed  Washington  in  establishing  specific 
benefits  but  on  a  somewhat  more  liberal  scale  with  60$  of  the 
wages  as  a  maximum. 

The  weekly  benefit  payments  are  further  limited  by  both 
minima  and  maxima.  No  special  criticism  may  be  made  of 
this,  provided  the  maximum  is  not  too  small  to  do  great  in- 
justice to  the  better  paid  employee,  and  the  minimum  not  too 
small  to  guarantee  any  sort  of  a  decent  standard.  The  pre- 
vailing minimum  is  $5  per  week  in  New  Jersey,  Ohio,  Illinois, 
Iowa;  $6  in  Kansas  and  Minnesota,  and  $4  in  Michigan, 
Massachusetts,  and  Rhode  Island — rather  a  sorry  comment 
upon  the  social  conscience  of  states  so  proud  of  their  culture. 
No  one  has  yet  been  able  to  prove  that  $4  a  week  will 
help  to  keep  up  any  decent  standard  for  a  family,  even 
in  Massachusetts.  The  maximum  is  $10  in  most  states; 
$9.38  in  Wisconsin,  $12  in  Illinois,  and  $15  in  Kansas  and 
Texas. 

But,  after  all,  the  maximum  limitation  does  not  affect  the 
majority  of  workers,  as  the  proportion  of  wage-workers  re- 
ceiving wages  over  $20  or  $30  a  week  is  very  small.  There 
is  another  limitation,  however,  due  to  the  same  effort  of  reduc- 
ing the  cost  to  the  employer,  which  is  very  much  more  vicious 
— so  vicious,  in  fact,  that  it  throws  a  deep  shadow  upon  the 
good  faith  of  those  who  are  responsible  for  this  kind  of  com- 
pensation legislation,  and  amply  explains  the  opposition  to 
compensation  laws  among  many  groups  of  workingmen.  That 


A  CRITICISM  OF  COMPENSATION  LAWS      193 

is  the  limitation  of  compensation  in  time  to  victims  of  perma- 
nent injuries.  That  is  a  principle  practically  unknown  on  the 
European  continent,  but  it  has  been  adopted  by  nearly  all 
states  which  have  passed  compensation  laws,  though  the 
limitation  is  not  so  clear  in  some  states  as  in  others.  In 
at  least  ten  states  a  flat  time  limit  is  put  upon  these  weekly 
benefits — fifteen  years  in  California  and  Wisconsin;  ten 
years  in  Kansas,  Michigan,  Massachusetts,  and  Rhode  Island ; 
eight  years  in  Illinois,  Iowa,  and  New  Jersey;  six  years  in 
Ohio  and  New  Hampshire.  In  Washington  and  Oregon  the 
principle  of  permanent  life  pensions  for  permanent  disability 
has  been  announced  triumphantly,  but  as  a  matter  of  fact, 
this  has  been  limited  to  permanent  total  disability — a  very 
rare  condition,  as  we  have  seen,  while  for  partial  permanent 
disability,  very  skimpy  lump-sum  payments  have  been  pro- 
vided. 

Moreover,  in  some  states  both  a  time  limit  and  an  amount 
limit  have  been  provided,  working  in  wonderful  harmony,  ex- 
cept that  each  limit  competes  with  the  other  as  to  which  can 
sooner  stop  the  payment  of  benefits.  Thus,  Massachusetts 
undertakes  to  pay  indemnity  for  five  hundred  weeks — nearly 
ten  years  (9  7-8  years,  to  be  exact),  but  there  is  the  $3,000 
limit.  Now,  the  weekly  amount  is  50$  of  the  wages,  and  not 
less  than  $4  nor  more  than  $10.  He  who  draws  the  minimum 
of  $4  per  week  will  receive,  during  five  hundred  weeks,  $2,000 
only,  and  then  his  time  limit  expires.  But  the  fortunate 
cripple,  who,  because  of  his  higher  wages  before  the  injury 
and  presumably  higher  standard  of  life,  gets  the  full  $10  a 
week,  will  exhaust  the  $3,000  maximum  within  three  hundred 
weeks  (5  years,  40  weeks),  and  to  him  the  promise  of  a  500- 
week  pension  means  nothing  but  a  hope  unrealized.  The  same 
situation  obtained  in  California  (under  the  older  law  of 
1911),  where  3  years'  wages  limits  the  promise  of  15  years 
of  compensation,  and  also  in  Wisconsin,  where  a  fifteen 
years'  pension  is  limited  by  $3,000.  Not  only  is  the  pay- 
ment of  compensation  limited  in  time,  but  that  time  is 
shorter  the  greater  the  weekly  amount,  which  may  be 
due  to  two  causes:  either  a  larger  wage  basis,  or  a  more 
serious  injury  and  greater  degree  of  disability.  If  the  in- 
jured suffers  a  reduction  of  his  earning  capacity  from  $20 
to  $4,  or  by  80^,  and  gets,  say,  $10  a  week,  he  is  entitled  to 


194  SOCIAL  INSURANCE 

that  pension  for  three  hundred  weeks,  or  less  than  six  years. 
But  if  his  injury  is  comparatively  unimportant  and  has  re- 
sulted in  reducing  his  earning  capacity  from  $20  to  $15,  or 
only  25$,  he  will  get  his  $3.75  per  week  for  the  full  fifteen 
years,  though  he  evidently  does  not  need  his  $5  half  as  badly 
as  the  man  who  is  left  dependent  upon  his  $4  or  $5  a  week. 
A  more  absurd  and  more  vicious  situation  could  hardly  be 
imagined. 

That  does  not  exhaust  the  list  of  absurdities  in  our  American 
compensation  scales.  As  was  pointed  out  repeatedly,  total 
permanent  disability  is  a  very  rare  phenomenon.  In  the  vast 
majority  of  cases  the  injured  person  recovers  eventually  and 
has  some  earning  capacity  left  in  him.  The  predominating 
European  method  of  compensating  these  injuries  is  to  give 
them  a  proportionate  amount  of  that  loss,  i.e.,  if  total  disability 
is  compensated  for  by  half  the  wages,  partial  disability,  or 
reduction  of  earning  capacity,  is  compensated  by  half  the 
difference  between  the  earning  power  before  and  after  the 
injury.  If  the  basis  is  two-thirds  of  the  wages,  the  same  is 
applied  to  the  reduction  of  earning  capacity.  This  reasonable 
rule  has  been  adopted  in  some  states.  But  on  the  other  hand, 
New  Jersey  has  introduced  a  new  and  ingenious  method  of 
compensating  partial  disability  cases,  which  is  original,  if 
nothing  else.  Briefly,  this  '  *  New  Jersey  idea  ' '  is  as  follows : 
Instead  of  making  an  effort  to  adjust  the  amount  of  compen- 
sation to  the  degree  of  disability,  the  adjustment  is  made  in 
time :  the  weekly  compensation  is  always  50$,  but  for  a  severe 
injury  the  payments  last  longer,  for  a  lighter  injury  a  shorter 
time.  The  value  is  thus  put  upon  various  parts  of  human 
anatomy:  200  weeks  for  an  arm;  150  weeks  for  a  hand,  and 
down  to  35  weeks  for  an  index  finger,  and  15  weeks  for  a  little 
finger.  A  leg  is  valued  at  175  weeks'  compensation,  and  a 
toe  only  at  10  weeks.  One  hundred  weeks  pay  for  the  loss  of 
an  eye.  This  schedule  must  be  read  in  connection  with  the 
limits  of  weekly  compensation,  $5  to  $10.  The  New  Jersey 
scale  was  followed  verbatim  in  the  Michigan  and  Ehode  Island 
laws,  and  with  modification  as  to  details  in  a  number  of  other 
states,  thus  demonstrating  that  no  precedent  is  ever  too  vicious 
to  be  followed  by  somebody.  Thus,  in  these  states,  the  present 
price  list  for  certain  irreplaceable  parts  of  the  human  machine 
is  as  follows: 


A  CRITICISM  OF  COMPENSATION  LAWS      195 

One  arm   $1,000— $2,000  One  little  finger'  ..$  75—$   150 

One  hand 750—  1,500     One  leg 875—  1,750 

One  thumb   300—     600     One  foot 625—  1,250 

One  index  finger       175—     350     One  great  toe 150—     300 

One  second    "  150—     300      Any  other  toe 50—     100 

One  third      «  100—     200     One  eye 500—  1,000 

But  even  these  amounts  are  granted  in  driblets  too  small  to 
make  any  use  of  the  capital  value,  but  at  the  same  time  lasting 
only  a  few  years. 

It  would  seem  useless  to  look  for  a  social  justification  of 
this  peculiar  method  of  compensation,  but  this  has  been  found 
by  the  United  States  Employers'  Liability  and  Workmen's 
Compensation  Commission,  which  has  embodied  this  feature 
of  the  New  Jersey  law  in  its  bill  for  compensation  of  employees 
in  interstate  commerce. 

The  Commission  says,  "  In  dealing  with  this  class  of  in- 
juries the  law  should  be  so  framed  as  to  say  to  the  injured 
man,  '  True,  you  have  lost  an  arm,  and  for  a  considerable 
period  of  time  (!)  it  will  be  difficult  for  you  to  engage  in  the 
labor  to  which  you  have  been  accustomed,  or  to  acquire  the 
ability  to  do  other  work;  but  one-armed  men  are  not  neces- 
sarily drones,  and  it  is  your  duty  to  again  become  a  self-sup- 
porting member  of  society  as  soon  as  you  can  do  so.  In  the 
meantime  you  are  to  be  taken  care  of.'  3  It  is  difficult  to 
characterize  this  sort  of  argument  when  addressed  to  a  manual 
laborer.  Need  the  honorable  Commission  be  told  that  a  one- 
armed  man  can  never  engage  in  the  labor  he  has  been  accus- 
tomed to  do,  and  that  while  one-armed  men  are  not  necessarily 
drones,  they  are  never  able  (as  wage-workers)  to  earn  anything 
like  the  amount  they  had  been  earning  as  able-bodied  men,  and 
surely  not  to  support  a  family? 

The  same  severe  criticism  must  be  made  in  regard  to  the 
treatment  of  fatal  accidents.  To  begin  with,  in  six  states  the 
lump-sum  principle  of  compensation  has  been  recognized,  to 
the  entire  exclusion  of  pension  payments,  namely,  in  Cali- 
fornia, Illinois,  Kansas,  Nevada,  New  Hampshire,  and  Wis- 
consin, and  the  amount  of  the  lump  sum  is  a  very  modest  one ; 
namely,  three  years'  wages  in  California,  Kansas,  Nevada, 
and  New  Hampshire;  four  years'  wages  in  Illinois  and  Wis- 
consin, but  a  maximum  of  $3,000  in  four  states,  $3,500  in 
Illinois,  and  $3,600  in  Kansas.  Too  much  attention  must  not 


196  SOCIAL  INSURANCE 

be  paid  to  the  maximum,  as  only  few  will  reach  it.  The 
minima  are  $1,000  in  California,  $1,200  in  Kansas,  $1,500  in 
Wisconsin  and  Illinois,  and  $2,000  in  Nevada. 

It  goes  without  saying  that  three  years'  wages  presents  no 
equitable  compensation  for  the  loss  of  a  bread-winner.  It 
can  do  no  more  than  tide  over  the  first  few  bad  years,  but 
does  not  at  all  solve  the  destitution  created  by  the  accident. 
Moreover,  a  very  serious  limitation  even  upon  these  modest 
amounts  is  the  provision  found  in  all  the  laws  enumerated, 
that  all  payments  made  between  accident  and  death  be  dis- 
counted from  the  death  benefit,  and  in  many  cases  of  linger- 
ing illness  preceding  death,  these  deductions  are  likely  to  be 
very  serious  indeed.  Moreover,  when  only  partial  dependents 
survive  the  victim,  only  a  part  of  this  amount  is  to  be  granted. 

The  other  states  have  recognized  the  advantage  of  the 
pension  system  over  the  lump  sum,  but,  in  doing  this,  intro- 
duced the  same  vicious  system  of  limitation  of  the  length  of 
pensions,  and  it  is  just  as  difficult  to  defend  it. 

New  Jersey  grants  from  25$  to  60$  of  wages  as  a  pension, 
according  to  the  number  of  dependents;  Michigan,  Massa- 
chusetts, Rhode  Island,  and  Iowa,  50$  of  the  wages;  Ohio, 
66  2-3$ — but  in  all  cases  for  six  years  only.  The  Washington 
state  insurance  system  has  discarded  any  adherence  to  the 
wage  level,  and  gives  an  even  $20  per  month  to  the  widow, 
with  $5  more  for  each  child  up  to  $35,  but  as  the  maximum 
must  not  exceed  $4,000,  that  extends  it  to  anywhere  from  ten 
to  sixteen  or  seventeen  years.  Even  the  latter  period  may  not 
work  full  justice,  as  the  widow  may  be  in  greater  need  in  her 
declining  days  than  ever  before,  but  the  time  limit  is  not  so 
preposterous  as  it  is  in  the  other  states  mentioned.  To  delay 
the  period  of  destitution  of  a  widow  with  several  small  children 
for  six  years,  is  not  to  compensate  the  family  for  the  economic 
loss  sustained,  and  the  problem  of  charitable  relief  of  the 
families  is  not  solved  thereby — only  postponed. 

Perhaps  the  worst  feature  of  all  these  time  limitations  is 
that  their  harmful  result  will  not  be  felt  at  once.  The  actual 
situation  as  it  must  necessarily  develop  will  be  that  the  pen- 
sions will  stop  at  a  time  when  disability  from  advancing  age 
is  added  to  the  disability  resulting  from  injury,  or  in  case  of 
fatal  injuries,  when  widows  or  parents  will  be  older  and 
weaker.  These  evils  will  not  manifest  themselves  until  eight  or 


A  CRITICISM  OF  COMPENSATION  LAWS      197 

ten  years  from  the  time  the  laws  have  been  enacted.  By  1920 
or  thereabouts,  it  may  reasonably  be  assumed  that  when  these 
restrictions  become  effective  there  will  be  an  outburst  of  in- 
dignation ;  but  no  remedial  measures  then  advanced  will  have 
any  retroactive  force. 

Another  crudity  of  most  of  the  acts,  one  that  has  been  kept 
out  of  most  European  laws,  is  the  absence  of  proportion  be- 
tween need  and  compensation  in  case  of  fatal  injuries.  Only 
in  very  few  acts  is  the  obvious  condition  foreseen  that  a 
larger  number  of  dependent  survivors  need  a  larger  pension. 
The  Washington  act  has  clearly  foreseen  that,  by  providing 
an  additional  five  dollars  for  each  child.  But  under  most  other 
acts,  one  young  surviving  widow  will  receive  no  less  than  an- 
other with  a  houseful  of  minor  children. 

The  effort  to  reduce  the  cost  of  compensation  also  ex- 
pressed itself  in  a  rather  long  waiting  time,  during  which  no 
compensation  is  paid.  In  analyzing  European  acts,  we  found 
that  notwithstanding  the  popularity  of  mutual  benefit  societies, 
the  tendency  was  to  reduce  the  waiting  time.  But  while 
such  membership  in  a  relief  association  is  very  much  less 
frequent  among  American  workingmen,  the  rather  long  wait- 
ing time  was  introduced.  Two  weeks  is  the  usual  period. 
In  fact,  it  is  found  in  all  the  acts  except  that  of  Illinois, 
California,  Texas,  West  Virginia,  Wisconsin,  and  Ohio,  where 
it  is  limited  to  one  week,  and  Oregon  seems  to  hold  the  unique 
distinction  of  having  abolished  the  waiting  period  entirely. 
Under  these  conditions,  with  only  a  50$  compensation  basis 
and  the  first  two  weeks  altogether  lost,  a  comparatively  unim- 
portant injury,  lasting  a  month  or  two,  may  do  serious  dam- 
age to  many  a  workingman's  family,  and  necessitate  appeals 
to  charity,  which  it  is  the  object  of  compensation  to  prevent.1 

From  a  hygienic  point  of  view  the  proper  organization  of 
medical  and  surgical  aid  is  a  matter  of  very  great  importance, 
especially  in  view  of  the  very  high  cost  of  medical  advice  and 
surgical  treatment  in  the  United  States.  Unfortunately, 
in  three  states,  Kansas,  New  Hampshire,  and  Nevada,  it 
is  practically  absent,  as  it  is  limited  to  fatal  cases  without 
dependents.  In  New  Jersey,  Massachusetts,  and  Iowa  it  is 
limited  to  two  weeks,  and  in  Michigan  to  three  weeks.  Only  in 

1  In  the  case  of  an  average  laborer  earning  some  $12  a  week,  the 
entire  compensation  for  a  month  of  disability  would  be  about  $12. 


198  SOCIAL  INSUKANCE 

a  few  states  is  it  provided  for  a  reasonably  long  period  (56 
days  in  Illinois,  90  in  California,  Minnesota,  and  Wisconsin, 
not  to  exceed  $200  in  Ohio). 

These,  in  brief,  are  the  compensation  provisions  of  the 
compensation  laws  passed  until  now.  Among  the  bills  and 
drafts  discussed  in  various  states,  and  entirely  too  numerous 
to  analyze  in  full,  there  are  a  few  which  deserve  special  men- 
tion. These  are:  the  draft  of  the  American  Federation  of 
Labor,  of  the  National  Civic  Federation,  of  the  Chicago  Con- 
ference, and  the  bill  for  interstate  railways,  proposed  by  the 
U.  S.  Commission  and  already  adopted  by  the  Senate. 

Perhaps  the  Federal  bill,  nearest  to  enactment  into  law,  is 
the  most  important  one.  This  is  naturally  an  act  limited  to 
one  industry,  but  this  is  so  tremendous  that  the  bill  is,  per- 
haps, more  important  than  any  one  as  yet  enacted.  The 
waiting  time,  as  in  most  laws,  has  been  placed  at  the  unjusti- 
fiably long  period  of  two  weeks.  Death  compensation  is  limited 
to  one-half  the  wages  (less  for  a  small  number  of  survivors) 
for  eight  years  only,  or  four  times  the  annual  wages,  with 
a  maximum  of  $4,800. 

The  bill  makes  a  praiseworthy  effort  to  adjust  compensation 
needs  to  the  number  of  surviving  dependents,  but  the  results 
of  this  effort  are  vitiated  by  the  eight-year  limit.  The  ad- 
justment of  wages  to  the  number  of  dependents  seems  to  have 
in  view  the  saving  of  the  employer's  money  rather  than  the 
protection  of  the  workman's  family.  For  non-fatal  injuries 
the  compensation  is  to  be  50$  of  the  wages  (maximum  $50 
per  month),  and  in  case  of  total  permanent  disability — for 
life.  As  an  admission  of  the  necessity  of  life  pensions  for 
permanent  injuries,  this  is  very  important,  but  the  practical 
use  of  this  provision  is  very  slight,  for  ' '  total  permanent  dis- 
ability "  is  a  very  rare  condition,  especially  as  defined  in 
the  law — such  gruesome  and  unusual  injuries  as  total  blind- 
ness, loss  of  both  arms  or  both  legs,  etc.  For  partial  permanent 
injuries  the  New  Jersey  plan  is  adopted — the  compensation  in 
various  injuries  differing  in  time  rather  than  in  amount.  The 
provisions  are  somewhat  more  liberal  than  those  of  the  New 
Jersey  act. 

Then,  there  are  the  two  drafts  which  have  been  simulta- 
neously pushed  in  many  states,  those  of  the  National  Civic 
Federation,  and  of  the  American  Federation  of  Labor.  Curi- 


A  CRITICISM  OF  COMPENSATION  LAWS      199 

ously  enough,  in  their  provisions  they  are  very  much  alike, 
and  this  is  not  at  all  because  the  Civic  Federation  has  been 
particularly  liberal  in  the  provisions  of  its  bill,  but  rather 
that  the  American  Federation  of  Labor  bill  is  entirely  too 
timid,  especially  as  a  formulated  demand  of  organized  labor. 
To  be  sure  this  bill  was  published  in  1909,  and  since,  in  many 
states,  labor  organizations  have  presented  more  ambitious  de- 
mands. Both  bills  are  limited  to  hazardous  occupations,  and 
a  limitation  like  this  is  especially  ill-advised  when  coming 
from  organized  labor.  Both  adopt  the  50$  as  basis  of  com- 
pensation, only  ten  years'  duration  of  the  pension  payments, 
and  three  years'  wages  for  fatal  accidents.  The  American 
Federation  of  Labor  bill  insists  upon  a  maximum  of  $5,000, 
and  the  Civic  Federation  thinks  a  maximum  of  $3,000  suffi- 
cient. But,  after  all,  the  higher  maximum  would  only  be  of 
interest  to  those  earning  over  $1,000  a  year,  and  the  per- 
centage of  workingmen  in  that  class  is  not  very  large.  Per- 
haps the  most  preposterous  feature  of  both  of  these  drafts 
is  that  neither  of  them  makes  any  provision  for  satisfactory 
medical  and  surgical  aid.  The  labor  draft  asks  for  ' '  first  aid 
only,"  and  the  Civic  Federation's  draft  is  willing  to  grant  it 
only  in  cases  of  fatal  accidents  without  dependents,  when  the 
payment  of  the  medical  bill  might  benefit  the  physician,  but 
no  one  else.  The  recognition  of  the  tremendous  social  value 
of  a  properly  organized  medical  service  is  altogether  lacking. 

The  conception  of  a  proper  compensation  bill  as  formulated 
by  the  Chicago  Conference  in  November,  1910,  must  also  be 
mentioned.  It  will  be  remembered  that  a  large  number  of 
representatives  from  eight  or  nine  state  commissions  partici- 
pated in  the  Conference,  and  while  no  draft  was  formally 
agreed  upon,  the  main  features  of  a  compensation  system  were 
taken  up  one  by  one,  and  some  agreement  reached  in  most 
of  them.  The  conclusions  are  important,  as  being  those  of 
people  who  have  given  more  than  casual  attention  to  the 
problem.  And  it  is  highly  significant  that  while  this  thorough 
study  of  the  problem  has  helped  them  to  avoid  some  of  the 
errors  into  which  some  acts  have  fallen — yet  when  the  question 
of  a  proper  scale  of  compensation  is  reached,  the  standards 
proposed  are  of  the  same  unsatisfactory  type  with  which  we 
have  become  familiar. 

Thirteen  distinct  questions  were  submitted  to  the  conference, 


200  SOCIAL  INSURANCE 

and  on  nearly  all  of  them  specific  conclusions  were  reached. 
According  to  the  answers  to  these  thirteen  questions,  a  com- 
pensation act  must  cover  all  employments,  and  all  persons  in 
such  employments,  compensate  all  injuries  irrespective  of 
negligence  of  employer  or  employee.  Installments  are  very 
wisely  ruled  to  be  preferable  to  lump-sum  payments.  Con- 
tributions from  employees  were  voted  down  as  undesirable ;  the 
conference  went  on  record  in  favor  of  compulsory  insurance, 
and  of  arbitration  boards  for  settlement  of  disputes.  With  all 
these  conclusions  no  fault  is  to  be  found. 

But  as  against  all  this,  there  stands  out  the  same  unsatis- 
factory compensation  scheme :  Two  weeks '  waiting  time,  medi- 
cal aid  limited  to  two  weeks  only,  for  temporary  disability 
50$  of  wages  only,  the  limits  five  to  ten  dollars ;  the  time  limit 
of  three  hundred  weeks  to  payments  for  permanent  disability, 
and  also  in  case  of  fatal  accidents.  There  is  a  pretense  of 
adjusting  compensation  to  need  in  providing  a  sliding  scale 
of  the  pension  in  accordance  with  the  number  of  surviving 
dependents  (from  25$  for  a  lone  widow,  to  60$  if  she  has 
more  than  five  children),  but  that  can  be  characterized  as  a 
pretense  only,  in  face  of  the  three  hundred  weeks'  limitation. 
And,  finally,  the  most  preposterous  provisions  are  those  ex- 
cluding from  all  benefits  dependent  aliens  (and  thus  establish- 
ing the  inherent  right  of  American  industry  to  slaughter 
immigrants),  and  also  illegitimate  children.  This  combina- 
tion of  patriotism  with  sexual  morality,  both  based  upon 
"  sound  business  considerations/'  is  highly  illuminating. 

In  this  criticism  of  the  American  acts  and  bills,  only  the 
most  essential  features  have  been  considered.  There  are 
many  other  features  which  would  have  deserved  equally  care- 
ful study,  were  it  not  for  the  fear  of  trying  the  patience  of 
the  reader. 

But  the  essentials  are  as  we  have  stated  them.  They  are 
unsatisfactory — that  is  quite  evident.  It  is  not  enough  that 
the  acts  are  an  improvement  upon  the  older  liability  situation. 
That  goes  without  saying.  But  that  does  not  justify  American 
law-givers  in  providing  a  system  inferior  to  the  best  and  tried 
European  systems. 

"What  is  responsible  for  these  shortcomings?  The  answer 
has  already  been  indicated.  The  class  directly  interested  in 
better  laws  did  not  display  either  the  knowledge  or  the  en- 


A  CRITICISM  OF  COMPENSATION  LAWS      201 

thusiasm  necessary  to  place  an  effective  piece  of  social  legisla- 
tion upon  the  statute-books.  For  this  reason  the  argument 
that  the  cost  of  compensation  must  be  kept  down  played  a  tre- 
mendous role  in  the  whole  movement.  And  the  plea  that  some- 
thing is  better  than  nothing  was  rather  overworked. 

The  question  of  cost  of  compensation  is  not  a  simple  one. 
It  cannot  be  answered  offhand  for  any  industry,  let  alone  all 
industry.  But  this  much  may  be  said :  The  burden  European 
industry  can  carry  cannot  be  excessive  for  the  highly  pro- 
tected and  highly  profitable  American  industries.  It  is  argued 
that  American  wages  being  higher,  the  cost  of  compensation 
would  also  be  higher.  But  that  is  evidently  a  misconception, 
for  almost  every  compensation  scale  is  expressed  in  terms  of 
wages,  and  the  cost  is  also  treated  as  ' '  proportion  of  the  wage 
expense. ' ' 

In  any  case  the  American  people  must  be  warned  against 
some  very  much  exaggerated  estimates  as  to  the  probable 
cost  of  a  just  and  satisfactory  compensation  scale.  It  is  true 
that  in  some  very  hazardous  undertakings  the  cost  of  com- 
pensation insurance  may  be  as  much  as  10$  of  the  pay-roll. 
But  if  it  be  true  that  the  cost  of  compensation  must  eventu- 
ally be  shifted  from  the  employer  to  the  consumer,  the  lat- 
ter (meaning  the  whole  American  people)  has  no  interest  in 
this  or  that  specific  rate  of  any  one  industry  but  only  in 
the  average  cost  of  industry  as  a  whole.  The  average  cost 
in  Germany  is  said  to  have  risen  to  1.75$  of  the  pay-roll, 
after  thirty  years  of  gradual  increase,  when  it  may  be  con- 
sidered as  fairly  permanent.  The  average  cost  for  Russia 
was  computed  by  the  writer  at  some  1.5$.  The  average  cost 
of  California's  new  compensation  scale  was  computed  by 
Professor  A.  W.  Whitney,  an  insurance  expert  and  mathe- 
matician, at  1.26$.  But  all  these  figures  do  not  represent 
an  additional  charge,  for  liability  insurance  (which  compen- 
sation is  a  substitute  for)  costs  on  an  average  about  1$  of  the 
wages.  The  difference  in  the  cost  of  a  good  and  of  a  bad 
compensation  scale  must,  therefore,  be  measured  in  fractions 
of  1$  of  the  pay-roll.  Will  any  one  seriously  contend  that 
American  industry  is  in  such  a  precarious  condition  that  it 
may  be  materially  affected  by  a  change  of  less  than  1$  in  the 
rate  of  wages?  If  that  were  true,  all  hope  for  a  social  insur- 
ance policy  should  be  abandoned,  for  of  all  its  branches 


202  SOCIAL  INSURANCE 

that  dealing  with  compensation  for  industrial  accidents  is  the 
least  expensive  one. 

The  twenty  acts  in  three  years  are  a  good  start.  But  even 
in  these  twenty  states,  or  most  of  them,  the  compensation  move- 
ment is  only  in  its  beginning.  All  the  acts  will  have  to 
be  rewritten,  at  least  as  far  as  their  scales  are  concerned. 
"  Compensation  that  sufficiently  compensates  "  will  be  the 
slogan  of  this  movement  in  the  near  future. 

For  this  reason,  recent  efforts  towards  a  higher  compensa- 
tion scale  deserve  to  be  mentioned.  In  the  fight  between  two 
bills  in  the  New  York  legislature  of  1913,  the  labor  bill,  de- 
ficient in  many  respects,  had  the  moral  virtue  of  demanding  a 
two-thirds  basis  of  compensation  instead  of  one-half.  The 
American  Association  for  Labor  Legislation,  through  its  Social 
Insurance  Committee,  recently  announced  that  the  American 
scales  are  unsatisfactory,  and  that  the  least  a  proper  compen- 
sation law  should  grant  is  a  scale  based  upon  two-thirds  of 
wages,  with  the  extension  of  the  compensation  over  the  entire 
period  of  disability,  or  in  case  of  fatal  accidents,  over  the 
entire  period  of  dependency  of  the  surviving  heirs. 

These  and  many  other  important  principles  of  sound  and 
sufficient  compensation  are  embodied  in  a  bill  prepared  by  the 
Association,  and  introduced  in  the  United  States  Congress  by 
Senator  Kern,  which  covers  only  the  civil  employees  of  the 
government,  but  is  intended  to  serve  the  larger  purpose  of 
establishing  a  model  standard  of  compensation  for  the  wage- 
workers  in  the  richest  country  in  the  world.2 

2  See  I.  M.  Rubinow,  "  Accident  Compensation  for  Federal  Em- 
ployees," The  Survey,  Aug.  16,  1913. 


PART  III 
INSURANCE  AGAINST  SICKNESS 


CHAPTER  XIII 
ECONOMIC  AND  INDUSTRIAL  ASPECTS  OF  DISEASE 

NOTWITHSTANDING  the  rapid  development  of  interest  in 
problems  of  social  insurance  in  this  country  during  the  last 
five  years,  very  little  attention  has  as  yet  been  paid  to  insur- 
ance against  sickness.  This  lack  of  interest  cannot  be  justified 
on  the  ground  of  absence  of  the  problem.  It  is  no  exaggera- 
tion to  say  that,  in  its  economic  effects,  illness  is  a  very  much 
more  destructive  factor  than  industrial  accidents.  Every  ex- 
perienced charity  worker  knows  that  illness  is  one  of  the  most 
frequent  causes  of  poverty  and  destitution  which  all  relief 
institutions  are  called  upon  to  meet  and  remedy. 

The  reports  of  the  New  York  State  Board  of  Charities  show 
that  of  328,059  persons  receiving  relief  in  some  form  from  the 
public  charitable  institutions  in  1910,  102,428,  or  nearly  one- 
third,  were  driven  to  it  by  sickness.  Nor  is  this  condition 
peculiar  to  any  one  locality  or  country.  "  We  are  apt  to 
forget,"  as  Mr.  and  Mrs.  Webb  have  tersely  put  in  one  of 
their  latest  works,  * '  that  in  all  countries,  at  all  ages,  it  is  sick- 
ness to  which  the  greatest  bulk  of  destitution  is  immediately 
due."1 

But  as  Professor  Seager  has  well  said,  "  In  the  United 
States  we  are  still  so  far  from  considering  illness  as  anything 
beyond  a  private  misfortune  against  which  each  individual 
and  each  family  should  protect  itself,  as  best  it  may,  that 
Germany's  heroic  method  of  attacking  it  as  a  national  evil 
through  governmental  machinery,  seems  to  us  to  belong  almost 
to  another  planet." 

In  other  words,  our  extreme  individualistic  philosophy  has 

interfered  not   only   with  the   elaboration  of  the  necessary 

remedial  measures,  but  even  with  a  proper  appreciation  of  the 

problems.    Thus,  for  instance,  one  of  the  deepest  students  of 

the  problems  of  poverty  in  the  United  States,  Professor  E.  T. 

Devine,  wrote  a  few  years  ago:  "  Prevalence  of  ill  health 

1  Prevention  of  Destitution,  p.  17. 

205 


206  SOCIAL  INSURANCE 

is  due,  in  large  part,  of  course,  to  ignorance  and  the  con- 
tinuous neglect  of  the  elementary  rules  of  personal  hygiene. 
The  health  department  and  the  public  schools,  physicians  and 
social  workers,  cry  aloud  from  the  housetops  the  value  of 
fresh  air,  of  simple,  inexpensive  nourishing  food,  of  exercise 
in  the  open  air,  of  the  practice  of  thorough  mastication,  of 
temperance  in  diet,  and  of  abstinence  from  drugs  and  strong 
drinks.  But  people — people  in  all  classes — are  slow  to  act 
upon  these  counsels,  and  they  destroy  foolishly  and  recklessly 
their  most  valuable  personal  asset  next  to  good  character ;  viz., 
their  health.  Economic  necessity  excuses  some,  but  only  a 
very  little  of  the  improvidence. ' '  2 

But  modern  sociological  thought  is  not  satisfied  to  reduce 
the  problem  of  national  health  to  the  individual  only.  It  has 
admitted  that  social  hygiene  is  a  very  much  more  important 
factor  than  individual  hygiene,  and  that  the  latter  may  only 
then  become  effective  when  the  prerequisite  conditions  of 
social  hygiene  exist.  Even  the  strictest  adherence  to  personal 
hygiene  may  not  save  one  from  cholera  in  eastern  Russia,  and 
no  precautions  against  the  disease  are  necessary  where  the  dis- 
ease itself  has  been  stamped  out. 

It  is  impossible  to  go  here,  at  any  great  length,  into  the  ques- 
tion of  causation  of  specific  diseases — a  well-defined  field  of 
scientific  inquiry  properly  belonging  to  the  domain  of  medicine 
— but  the  general  causes,  which  are  of  tremendous  social  im- 
portance, must  at  least  be  referred  to.  The  effects  of  heredity, 
though  important,  are  often  unnecessarily  exaggerated,  and 
it  is  a  well-established  fact  that  the  vast  majority  of  children 
are  born  healthy.  Most  diseases  are  naturally  due  to  the 
environment.  To  be  sure,  the  results  of  the  misdoings  of  the 
individual  need  not  be  entirely  disregarded,  for  the  individual 
may  create  part  of  his  own  environment.  It  simply  means 
that  diseases  are  a  result  of  the  conditions  of  life  and  work 
of  man,  and  that,  after  all,  even  conduct  of  the  individual 
may  have  its  explanations  in  these  conditions  of  life  and  work. 

Of  course,  it  may  be  claimed  that  illness  does  not  represent 
a  specific  problem  of  labor — that  all  sorts  and  conditions  of 
men  take  sick.  It  is  true  that  no  class  of  society  is  free  from 
the  ills  to  which  human  flesh  is  subject,  for  certain  conditions 
of  life  are  universal  in  a  certain  social  group,  and  not  selective 
2  Misery  and  Its  Causes,  p.  74. 


ECONOMIC  ASPECTS  OF  DISEASE  207 

as  to  definite  classes.  Such  are  the  conditions  of  a  general 
epidemic,  of  climate,  of  defective  sanitation.  But,  after  all,  at 
a  certain  stage  of  civilization  these  conditions  cause  the  minor 
portion  of  ailments.  As  the  conditions  of  life  and  of  work 
of  different  social  classes  are  vastly  different,  so  are  the  dis- 
eases resulting  from  such  conditions,  or  at  least  the  frequency 
and  intensity  of  the  same  diseases.  The  conditions  of  high 
living,  vice,  and  idleness  which  characterize  certain  social 
strata,  may  cause  certain  pathological  results.  Gout  is  the 
disease  of  the  rich,  even  as  tuberculosis  is  the  disease  of  the 
poor.  In  fact,  so  conspicuous  are  these  aristocratic  diseases, 
that  one  often  hears  the  deep  conviction  eloquently  ex- 
pressed that  frugality  bordering  on  poverty  is  more  conducive 
to  health  and  longevity  than  wealth.  This,  however,  is  a  sad 
exaggeration  of  actual  conditions.  All  investigations  have 
demonstrated  a  higher  mortality  rate  and,  consequently,  a 
higher  sickness  rate  among  the  poorer  classes. 

It  is  quite  true  that  the  same  causal  connection  cannot 
always  be  established  between  all  sickness  and  occupation  as 
between  the  trade  and  industrial  accident.  It  was  often  sought 
to  draw  a  radical  distinction  between  the  problem  of  accident 
and  sickness  on  these  lines.  But  the  distinction  is  not  one  of 
kind  but  of  degree  only.  There  are  non-industrial  accidents 
as  there  are  non-industrial  diseases.  There  are  specific  occu- 
pational diseases  directly  traceable  to  certain  industrial 
processes,  no  less  than  certain  classes  of  accidents  are  trace- 
able to  certain  machinery.  But  as  most  accidents  are  due 
to  the  general  conditions  of  the  industry,  rather  than  specific 
mechanical  appliances,  so  most  ailments  are  due  to  the  general 
conditions  under  which  the  workingmen  live  and  work  as 
wage-workers.  In  a  very  interesting  paper  on  "  How  to  At- 
tain Good  Health  and  Longevity, " 3  a  physician  enumerates 
the  following  decalogue  of  a  normal  life:  (1)  Plenty  of  good 
food;  (2)  abundance  of  fresh  air;  (3)  physical  exercise  in  the 
open  air;  (4)  a  substantial  annual  vacation;  (5)  peace  of 
mind;  (6)  intellectual  work;  (7)  proper  distribution  between 
city  and  country  life;  (8)  congenial  occupation;  (9)  normal 
sexual  life;  (10)  good  medical  care. 

In  application  to  the  wealthy,  or  even  upper  middle  class, 
this  is  eminently  sound  advice,  and  thousands  of  prosperous 

8  Dr.  William  J.  Robinson  in  Critic  and  Guide,  November,  19 11. 


208  SOCIAL  INSURANCE 

Americans  have  preserved  their  health  and  vigor  by  just  such 
rules  of  conduct,  while  others  are  paying  a  heavy  penalty  for 
neglecting  them.  But  when  a  mental  effort  is  made  to  apply 
these  ten  commandments  to  the  life  of  the  modern  wage-work- 
ing class,  the  eminently  sound  advice  suddenly  acquires  a 
rather  humoristic  flavor,  so  far  are  some  of  the  suggestions 
from  the  domain  of  reality. 

For  the  vast  and  growing  majority  of  the  workingmen  and 
workingwomen,  not  a  single  one  of  these  conditions  can  be 
realized.  In  fact,  these  ten  conditions  are  lacking  in  such  a 
marked  degree,  that  only  by  a  high  degree  of  resistance  of 
the  human  body,  and  by  its  essential  inherited  healthfulness, 
can  the  fair  degree  of  health  of  our  wage-workers  be  explained. 
But  the  effect  of  the  absence  of  all  these  conditions  is  often 
invidious,  and  manifests  itself  more  in  premature  superannua- 
tion and  various  chronic  ailments  than  in  acute  attacks  of 
illness. 

^i  The  modern  workman,  even  in  the  richest  of  all  countries, 

and  with  the  highest  standard  of  wages  and  with  an  abundant 
food  supply,  does  not  get  the  necessary  food.  If  cases  of  actual 
underfeeding  are  comparatively  few  as  far  as  quantity  is  con- 
cerned, the  quality  is  poor,  and  is  becoming  poorer  very 
rapidly  under  pressure  of  high  prices.  Fresh  wholesome  food 
is  too  expensive.  The  charge  of  unsatisfactory  feeding  of  the 
wage-working  class  may  shock  many  an  American  conscience. 
Nevertheless,  the  charge  will  be  substantiated  by  every  one 
who  has  first-hand  knowledge  of  the  life  of  the  American 
workingman. 

A  good  deal  has  been  said  of  the  lower  standard  of  life 
of  the  immigrant  from  eastern  or  southern  Europe.  Never- 
theless, most  students  of  the  life  of  immigrants  will  agree  that 
he  usually  consumes  more  and  healthier  food  than  the  Amer- 
ican workman.  The  very  fact  of  a  higher  standard  of  life, 
paradoxical  as  it  may  seem,  forces  a  poorer  food  supply,  for 
better  clothing  and  better  housing  accommodations  and  all  the 
other  efforts  for  a  higher  standard  leave  a  smaller  share  for 
food,  and  economy  in  food  is  the  sort  of  economy  that  can  be 
practised  without  much  loss  of  social  caste. 

On  the  other  hand,  the  constantly  rising  level  of  food 
prices  is  a  force  constantly  working  for  food  deterioration 
and  substitution.  The  agitation  of  the  last  few  years  concern- 


ECONOMIC  ASPECTS  OF  DISEASE  209 

ing  pure  food  legislation  and  its  enforcement  or  lack  of  en- 
forcement, has  at  least  thrown  some  light  on  the  subject,  even 
if  it  has  failed  to  furnish  a  satisfactory  remedy  as  yet.  It 
may  be  easy  to  eliminate  a  definitely  poisonous  preservative, 
though  even  this  step  has  often  met  a  powerful  and  victorious 
opposition.  But  the  general  deterioration  of  the  food  supply 
through  substitution  of  cheap  canned  goods  for  fresh  vege- 
tables, and  old  frozen  meats  for  fresh  meats,  is  more  difficult 
to  measure. 

Another  factor  which  must  seriously  affect  the  food  supply 
of  the  working  class  is  the  disappearing  art  of  cooking  among 
the  women  of  the  working  class,  due  to  the  increased  employ- 
ment of  young  women  in  factories,  shops,  and  stores  during 
a  period  of  life  when,  in  the  past,  some  preparation  for  house- 
work was  usually  obtained.  One  need  not  be  suspected  of 
antagonizing  the  economic  independence  of  women  to  recognize 
this  hard  fact,  that  until  a  perfect  adjustment  of  home  life 
to  these  new  conditions  is  accomplished,  women's  work  in  fac- 
tories and  shops  means  a  deteriorated  food  supply  for  the 
wage-worker  and  his  family. 

Finally,  the  cheap  lunchroom,  or  eating-place,  is  contribut- 
ing its  share  to  the  attack  upon  the  workingman's  stomach. 
Partly  because  of  this  new  industrial  activity  of  women,  and 
also  because  of  the  nomadic  character  of  many  trades,  and 
the  delay  in  marriage  in  all  strata  of  society,  the  workingman 
is  more  and  more  forced  to  buy  his  food  prepared  in  these 
institutions.  And  if  recent  disclosures  of  the  conditions  in 
the  kitchens  of  the  best  hotels  were  such  as  to  revolt  many 
a  sensitive  digestion,  the  quality  of  food  may  be  estimated 
when  dinners  are  served  for  fifteen  or  twenty  cents. 

Modern  hygiene  has  sufficiently  demonstrated  the  impor- 
tance of  a  supply  of  fresh  air  as  a  condition  of  good  health. 
It  is  largely  true  that,  as  Dr.  Devine  says,  "  the  health  de- 
partment and  the  public  schools,  physicians  and  social  workers 
cry  aloud  from  the  housetops  the  value  of  fresh  air/'  but  it 
must  be  remembered  that  "  fresh  air  "  has  become  (in  large 
cities  at  least)  a  marketable  article.  The  "  fresh  air  "  of  the 
slum  district  may  not  be  all  that  is  desired.  The  housing 
conditions  of  the  working  class  are  surely  far  from  satisfac- 
tory. Tenement-house  legislation  is  far  from  ideal,  and  in  the 
factories,  too,  the  conditions  are  but  seldom  satisfactory. 


210  SOCIAL  INSURANCE 

Thus,  the  backwardness  of  industrial  hygiene  and  municipal 
hygiene  both  together,  go  far  to  deprive  the  modern  wage- 
worker  of  the  needed  supply  of  fresh  air,  no  matter  what  his 
personal  standard  of  hygiene. 

Physical  exercise  in  the  open  air  is  rapidly  becoming  the 
gospel  of  the  intelligent  and  well-to-do  American.  Even  the 
worst  excesses  of  our  "  national  ball  game  "  have  been  de- 
fended as  conducive  to  this  ideal.  Tennis  and  golf  have  pre- 
served many  a  statesman  in  excellent  health.  But  as  far  as  the 
wage-worker  is  concerned,  physical  exercise  in  the  open  air 
is  possible  for  a  few  trades  only,  and  then  it  must  be  per- 
formed in  all  sorts  of  weather  conditions  leading  to  diseases 
of  exposure,  catarrhal  and  rheumatic  conditions. 

The  indoor  worker  has  neither  the  time  nor  the  strength 
for  it,  for  a  full  day's  work  is  not  calculated  to  develop  the 
desire  for  more  physical  exercise.  The  sort  of  physical  exer- 
cise the  factory  workman  gets  is  monotonous,  limited  often  to 
a  few  muscles,  too  fast  to  be  healthy,  and  produces  muscle 
fatigue  rather  than  harmonious  bodily  development.  And  the 
whole  tendency  of  modern  industry  is  to  make  this  muscular 
exercise  faster,  more  uniform,  and  more  monotonous.  This 
may  spell  efficiency,  but  it  is  the  sort  of  efficiency  that  sacrifices 
the  employee  to  the  interest  of  the  establishment.  If  the 
mental  and  physical  effects  of  such  monotonous  physical  exer- 
cise are  understood,  they  will  furnish  an  explanation  of  the 
seemingly  senseless  opposition  of  the  workman  to  the  much 
advertised  systems  of  "  scientific  management. " 

Perhaps  little  need  be  said  of  such  "  Utopian  "  require- 
ments of  good  health  as  a  substantial  vacation,  peace  of  mind, 
intellectual  work,  congenial  occupation,  and  distribution  be- 
tween city  and  country  life.  Modern  machinery  gradually 
displaces  skilled  handicraft  by  unskilled  labor;  the  growing 
division  of  labor  is  fatal  to  the  intellectual  pride  and  interest 
in  the  work,  and  no  amount  of  zeal  can  make  coal  mining, 
or  even  weaving,  a  congenial  occupation.  The  rapid  growth 
of  our  cities  is  producing  a  generation  to  which  country  life 
is  absolutely  unknown,  for  even  the  brief  vacation  of  clerical 
employments  is  altogether  unknown  to  the  industrial  wage- 
workers.  Interruption  of  work  occurs  only  during  periods  of 
unemployment,  whether  because  of  dull  times  or  labor  conflicts, 
when  extreme  anxiety  destroys  all  advantages  of  the  enforced 


ECONOMIC  ASPECTS  OF  DISEASE  211 

rest.  Besides,  the  effort  of  looking  for  work  is  often  more 
strenuous  than  work  itself,  and  peace  of  mind  must  be  a  rare 
luxury  in  view  of  the  precarious  economic  conditions. 

It  may  at  least  be  claimed  that  the  very  poverty  of  the  wage- 
worker  by  preventing  sexual  excesses  grants  the  one  necessary 
factor  of  normal  sexual  life,  but  for  a  good  many  reasons  even 
this  is  not  true.  On  one  hand,  the  growing  inadequacy  of 
the  wages,  both  because  of  the  rising  cost  of  living  and  of 
the  demand  for  a  rising  standard  of  life,  make  for  excessive 
delay  of  marriage.  On  the  other,  a  good  many  trades  are 
wanderer's  trades  (as  railroading,  construction),  and  prevent 
a  normal  sexual  life.  Factors  which  cause  the  well-known, 
alarmingly  high  rate  of  so-called  social  diseases  among  our 
military  also  affect  many  trades  of  our  industrial  army.  As 
yet  we  have  been  trying  to  counteract  the  evil  effects  of  these 
diseases  through  sermons  and  preachings  rather  than  hospitals 
and  sanatoria.  And,  finally,  the  cost  of  medical  advice  and 
all  that  medical  and  surgical  attention  presupposes  is  high, 
and  as  an  individual,  the  workman  cannot  afford  it,  especially 
in  case  of  chronic  ailments. 

If  such  are  the  negative  factors  preventing  a  high  standard 
of  health  among  all  wage-workers,  there  are  other  positive 
ones  which  directly  lay  the  responsibility  of  the  workingman  's 
illness  upon  the  industry. 

First,  there  is  the  large  class  of  occupational  diseases,  a 
phrase  to  which  we  as  yet  give  a  very  narrow,  limited  interpre- 
tation, i.e.,  such  diseases  as  only  occur  as  a  result  of  a  definite 
occupation.  As  yet  the  study  of  this  problem  in  this  country 
is  in  its  infancy.  There  are  the  many  forms  of  industrial 
poisonings  as  a  result  of  handling  hundreds  of  poisonous  sub- 
stances— as  a  list  of  them  published  by  the  United  States  Gov- 
ernment shows.  The  most  frequent  and  the  most  familiar  are 
phosphorus,  arsenic,  lead,  and  mercurial  poisoning.  But 
there  are  a  large  number  of  less  familiar  poisons,  whose  action 
is  no  less  deadly.  The  list  published  by  the  International 
Association  of  Labor  Legislation  and  prepared  by  its  Perma- 
nent Advisory  Council  of  Hygiene,  consisting  of  six  eminent 
specialists,  contains  53  classes  or  groups  of  poisons,4  and 
hundreds  of  branches  of  industry  in  which  these  are  an  ever- 
present  danger.  Among  these  poisons,  in  addition  to  those 
4  Bulletin  of  the  Bureau  of  Labor,  Nos.  86  and  100. 


212  SOCIAL  INSURANCE 

mentioned,  are  ammonia,  aniline  dyestuffs,  benzine,  carbon 
deoxide  and  carbon  monoxide,  chloride  of  lime,  wood  alcohol, 
oxalic  acid,  petroleum,  carbolic  acid,  sulphur,  turpentine  oil, 
and  so  forth,  while  the  list  of  dangerous  industries  is  entirely 
too  long  to  be  quoted.  There  is  hardly  any  one  line  of  modern 
manufacture  which  is  free  from  the  dangers  of  industrial 
poisoning.  But  industrial  poisonings  do  not  complete  the 
whole  list  of  industrial  diseases.  In  a  "  memorial  on  occu- 
pational diseases  "  prepared  by  a  committee  of  experts  and 
presented  to  the  President  of  the  United  States  on  September 
29,  1910,5  industrial  diseases  were  defined  as  "  morbid  results 
of  occupational  activity  traceable  to  specific  causes  and  labor 
conditions,  and  followed  by  more  or  less  extended  incapacity 
for  work. ' '  Under  this  definition  a  great  many  ailments  may 
properly  be  included  in  addition  to  the  industrial  poisonings 
due  directly  to  harmful  substances. 

It  is  sufficient  to  mention  tuberculosis  in  dusty  trades  to 
convey  this  idea.  A  disease  is  no  less  occupational  because 
it  occurs  outside  the  occupation  as  well,  as  long  as  a  close 
causal  connection  between  the  occupation  and  disease  exists, 
and  while  tuberculosis  is  the  gravest  and  most  widespread  form 
of  occupational  disease,  it  is  not  the  only  one.  There  are  the 
many  ruptures  of  persons  required  to  carry  heavy  weights. 
There  is  the  forced  exposure  to  unfavorable  climatic  and 
weather  conditions,  as  in  railroading  or  in  building  trades. 
There  is  the  overexertion  of  certain  muscles  of  organs  of  sense, 
as  in  drafting,  in  railroading,  for  the  eye;  as  in  boiler-shops 
for  the  ears ;  there  is  the  harmful  result  of  improper  postures 
upon  lungs  or  digestive  organs,  as  in  the  sedentary  occupations 
of  the  clerical  force,  or  upon  the  female  organs  because  of 
excessive  standing  of  the  salesgirls,  and  there  are  the  harmful 
results  of  night  work  for  a  large  and  growing  army  of  workers 
who  have  been  forced  to  reverse  the  normal  conditions  of  life 
and  work;  and,  finally,  there  is  the  vastly  more  universal 
phenomenon  of  excessive  fatigue  due  either  to  excessive  hours 
or  excessive  speed,  or  both.  In  short,  though  it  is  difficult  to 
measure  it  in  individual  cases,  there  is  no  doubt  that  modern 
industry  is  responsible  for  a  large  proportion  of  the  work- 
ingman's  illness,  as  it  is  responsible  for  the  majority  of  indus- 
trial accidents. 

8  See  American  Labor  Legislation  Review,  Vol.  I,  No.  1,  p.  125. 


ECONOMIC  ASPECTS  OF  DISEASE  213 

Of  course,  other  factors  may  be  easily  discovered  as  well. 
A  part  of  the  responsibility  may  be  placed  upon  unwise  living, 
and  a  certain  .share  undoubtedly  lies  in  the  general  sanitary 
conditions  of  the  community  of  which  the  wage-worker  is 
a  member.  Thus,  if  instead  of  finding  causes  we  were  anxious 
to  apportion  the  blame,  we  would  be  forced  to  apportion  it 
between  the  workshops,  the  worker  himself,  and  society  at 
large.  The  water  supply,  the  milk  supply,  the  presence  of 
mosquitoes,  the  unsatisfactory  measures  against  contagious 
diseases,  bad  housing  legislation,  insufficient  school  and  fac- 
tory inspection,  all  these  are  factors  for  which  society  at  large 
is  clearly  responsible.  As  against  these  social  causes  of  dis- 
ease, one  may  emphasize  the  individual  causes — unwise  dress- 
ing, unwise  eating,  consumption  of  alcohol,  and  sexual  vice. 
But  even  as  far  as  these  so-called  factors  of  ill  health  are  con- 
cerned, one  cannot  fail  to  see  in  them,  or  at  least  in  most  of 
them,  the  evil  results  of  ignorance — results  of  an  unsatisfac- 
tory system  of  public  education,  as  to  the  laws  of  physical 
and  moral  health ;  and  education  is  quite  evidently  a  social  and 
not  an  individual  function.  It  is  true  that  all  these  observa- 
tions may  be  considered  rather  trite ;  but  it  seemed  worth  while 
to  make  them,  if  only  for  purposes  of  emphasis,  because  while 
recognizing  these  social  and  industrial  causes  of  disease,  we 
are  quite  prone  to  insist  that  personal  virtue  or  wisdom  is, 
after  all,  the  most  important  factor.  How  else  can  it  be  ex- 
plained that  we  teach  personal  hygiene  (baths,  toothbrushes, 
etc.)  so  vociferously,  and  industrial  hygiene  not  at  all! 

It  would  be  extremely  valuable  to  measure  the  economic 
problem  of  disease  in  the  United  States,  but,  unfortunately, 
American  data  on  the  subject  are  almost  altogether  absent. 
So  long  as  the  vital  statistics  of  the  United  States  is  in  such  a 
deplorable  condition  that  the  number  of  deaths  or  even  births 
in  the  country  is  largely  a  matter  of  guesswork,  or  at  best  of 
scientific  estimating,  it  is  idle  to  expect  any  accurate  informa- 
tion as  to  the  rate  of  sickness  in  general  or  especially  in 
dependence  upon  certain  occupations.  Even  more  than  in 
the  study  of  accidents  will  we  be  forced  to  rely  upon  European 
sources  of  information. 

Even  in  Europe,  however,  satisfactory  data  for  sickness 
statistics  are  available  for  a  few  countries  only.  Only  when  a 
systematic  method  of  sickness  relief  exists  can  such  statistics 


214  SOCIAL  INSURANCE 

be  had,  and  then  they  refer  only  to  those  classes  protected  by 
the  relief  or  insurance  systems.  In  Austria,  for  instance, 
with  nearly  3,000,000  persons  included  in  that  system,  there 
occurred,  in  1907,  1,623,000  cases  of  sickness  causing  loss  of 
time  equivalent  to  28,000,000  days.  This  gives  53$  of  sick- 
ness for  the  body  of  workingmen,  and  nearly  10  days  of  sickness 
for  each  person,  and  17  days  for  each  case  of  sickness. 

In  Germany,  where  over  13,000,000  persons  were  insured 
against  sickness,  there  were  over  5,200,000  cases  of  sickness 
in  1908,  or  40  per  hundred,  and  the  number  of  days  lost  was 
104,000,000,  or  8  per  person  insured,  and  20  days  per  case. 
In  Germany  alone,  therefore,  industry  lost  about  350,000 
productive  years  of  work  in  one  year — that  is  the  measure  of 
the  loss  from  the  point  of  view  of  national  wealth.  It  is  only 
because  we  have  always  accepted  sickness  as  natural  and  in- 
evitable, but  look  upon  accidents  as  something  fortuitous, 
sudden,  unnecessary,  that  we  are  shocked  at  the  accident  loss 
and  pass  by  the  sickness  loss  quite  complacently.  In  absence 
of  similar  data  for  the  United  States,  one  must  fall  back 
upon  scientific  estimating.  In  the  "  Memorial  of  Industrial 
Diseases  "  quoted  above,  the  following  interesting  estimate 
is  made: 

ESTIMATE  OF  SICKNESS  AND  ITS  COST  AMONG  OCCUPIED  MALES  AND 
FEMALES  IN  THE  UNITED  STATES.    (1910,  33,500,000.) 

(a)  Estimated  number  of  cases  of  sickness  on  the 
German  basis  of  40$  of  the  number  of  persons 
exposed  to  risk 13,400,000 

(&)  Estimated  number  of  days  of  sickness  on  the  Ger- 
man basis  of  8 . 5  days  per  person  per  annum  . . .  284,750,000 

(c)  Estimated  loss  in  wages  at  an  average  of  $1.50  a 

day  for  6/7  of  the  284,750,000  days $366,107,145 

(d)  Estimated  medical  cost  of  sickness  at  $1  a  day  for 

248,750,000  days   284,750,000 

(e)  Estimated  economic  loss  at  50  cents  a  day  for  6/7 

of  the  $284,750,000    112,035,715 

(/)   Total   social   and   economic   cost   of  sickness  per 

annum   792,892,860 

But  the  general  average  does  not  teach  very  much,  except 
to  indicate  that  sickness  is  a  much  more  serious  economic  risk, 
since  it  affects  annually  40$  to  50$  rather  than  5$  or  6$,  as 
do  industrial  accidents.  A  somewhat  more  detailed  analysis 
is  necessary  to  bring  out  the  various  factors  responsible  for 


ECONOMIC  ASPECTS  OF  DISEASE  215 

the  sickness  rate,  and  its  comparative  dangers  to  various  in- 
dustrial groups.  For  such  analyses  several  European  investi- 
gations, primarily  two  undertaken  in  Austria,  one  covering  the 
famous  Leipsic  sick-fund  in  Germany,  and  other  similar 
studies,  furnish  valuable  material. 

One  important  non-industrial  factor  is  that  of  age  and  sex. 
The  dependence  of  the  sick-rate  upon  sex  and  age  is  self- 
evident.  The  following  data  derived  from  the  Austrian 
investigation  covering  a  five-year  period  (1891-1895)  and  over 
six  million  persons,  demonstrate  the  influence  of  these  factors. 

AVERAGE  PROPORTION  OF  CASES  OF  SICKNESS  AND  OF  SICK  DAYS 
ACCORDING  TO  SEX  AND  AGE  (AUSTRIA  1891-1895) 

Cases  of  sickness  per  Days  of  disability 

100  persons  per  (per  person) 

annum  per  annum 

Age                                Male             Female  Male            Female 

15                          42.9            42.2  5.5              6.4 

20                           43.8            38.0  6.1              6.4 

25                           44.0            38.0  6.3              6.9 

30                          45.6            41.3  6.8              7.9 

35                          47.4            44.3  7.6              9.0 

40                          49.2            46.3  8.4              9.7 

45                          52.9            49.5  9.6            10.7 

50                          56.2            50.7  11.0            11.5 

55                          58.0            51.6  12.3            12.0 

60                          63.6            52.6  15.1            13.9 

65                          67.7            56.3  19.4            16.3 

70                          70.8            61.6  23.9            21.5 

75                          77.7            65.3  31.8            24.5 

80                          75.3            67.6  37.7            44.7 


All  ages   47.4  41.9  7.8  7.9 

For  all  age  groups  the  female  sex  shows  a  smaller  number 
of  cases  of  illness,  but  because  of  a  longer  duration  of  sickness 
when  it  does  occur,  the  average  time  lost  is  greater  for  women 
than  for  men.  The  smaller  rate  of  sickness  for  women  is  a 
common  fact.  It  may  be  partly  due  to  the  fact  that  less  women 
are  employed  in  the  injurious  occupations,  and  possibly  to 
somewhat  more  regular  personal  habits. 

But  sex  as  a  factor,  therefore,  appears  much  less  important 
than  age.  The  average  time  lost  rises  with  age,  so  that  while 
the  general  average  may  be  less  than  eight  days,  it  rises  to  nine 
and  ten  for  the  middle-aged  groups,  i.e.,  the  groups  of  married 
men  with  family  responsibilities. 


216  SOCIAL  INSURANCE 

When  we  come  to  study  the  sick-rate  of  different  industries, 
the  influence  of  the  industrial  factor  is  disclosed  at  once.  We 
will  avail  ourselves  for  this  purpose  of  the  experience  of  the 
Leipsic  sick-fund,  which  extends  over  twenty-eight  years,  and 
embraces  altogether  over  a  million  and  a  quarter  years  of 
exposure.  Of  course,  the  statistical  data  must  be  read  care- 
fully, or  misinterpretation  is  possible. 

We  have  shown  above  that  the  sick-rate,  as  measured  by  the 
average  number  of  sick-days  per  year,  largely  depends  upon 
age  and  sex  as  well  as  occupation.  It  is  evident,  therefore, 
that  taking  two  occupations  of  an  entirely  different  age  com- 
position, such  as,  for  instance,  hotel  employees,  over  one-half 
of  whom  are  under  twenty-five  years  of  age,  and  the  building 
trades,  in  which  persons  of  this  age  group  are  only  a  little  over 
25$,  we  will  obtain  a  variation  in  the  sick-rate  which  will 
seemingly  be  due  to  occupation,  but  in  reality  may  be  to  the 
differences  in  average  age.  Thus,  for  the  hotel  workers  the 
average  loss  is  6.5  days,  and  for  the  building  trades  10.5  days, 
or  4  days  more.  But  when  the  same  age  group,  say  25-34,  is 
studied,  then  the  average  loss  is  6.3  for  the  hotel  workers  and 
8.8  for  the  building  trades,  a  difference  of  2.5  days.  Thus, 
the  difference  of  the  sick-rate  between  building  trades 
and  hotel  workers  (4  days),  is  really  due  to  two  factors,  of 
which  the  difference  in  age  groupings  is  one,  amounting  to 
about  three-eighths  of  the  entire  difference,  and  the  actual 
industrial  conditions  are  another  of  some  five-eighths  strength. 

We  have  selected  for  our  comparisons,  therefore,  one  age 
group,  that  of  maturity  between  youth  and  middle  age,  as 
perhaps  the  most  important  economically. 

The  data  all  refer  to  one  compact  locality,  so  that  varia- 
tions in  climatic  conditions  are  excluded.  Presumably,  they 
deal  with  a  fairly  uniform  labor  force.  German  statistics  are 
but  little  complicated  by  influences  of  race  variation.  Sex 
and  age  variations  have  also  been  excluded.  We  thus  have 
isolated  the  industrial  factor,  and  it  proves  to  be  a  very  strong 
one ;  though  the  variations  between  industry  and  industry  are 
not  as  marked  as  in  case  of  accidents,  they  are  exceedingly 
important.  In  fact,  all  excess  in  the  sick-rate  above  the 
minimum  found  in  office  work  may  partly  be  placed  at  the 
door  of  industrial  conditions.  If  the  chance  of  taking  sick  is 
only  21.6$  for  the  office  employee  and  58.2$  for  the  stone- 


ECONOMIC  ASPECTS  OF  DISEASE  217 

worker,  if  the  average  time  lost  during  the  year  is  only  5.8 
days  for  the  former  and  17.5  days  for  the  latter,  then  the 
extra  36.6$  of  sickness,  the  extra  loss  of  11.7  days  per  annum, 
may  rightfully  be  charged  to  the  stone-working  industry, 
even  as  all  cases  of  phosphorus  poisoning  may  be  charged  to 
the  match  industry.  And  only  when  the  conception  of  occupa- 
tional disease  is  interpreted  in  this  broad  way,  is  justice  done 
to  the  wage-worker,  and  will  industrial  hygiene  be  fruitful  of 
results. 

CASES  OF  SICKNESS  PER  100  PERSONS  AND  NUMBER  OF  SICK  DAYS 
PER  PERSON  IN  CERTAIN  INDUSTRIES  (AMONG  PERSONS  35-44) 
ACCORDING  TO  DATA  OF  THE  LEIPSIC  SICK  INSURANCE  FUND 

Cases  of  sickness        Sick  days 
Industries  per  100  persons     per  one  person 

per  annum  per  annum 

MALES 

Stone-working  58.2  17.5 

Cement  and  lime 65.8  13.6 

Building  trades   51.7  11.7 

Metal-working 49.6  11.1 

Printing,  publishing,  etc 32 .4  11 . 1 

Glass,  porcelain,  and  pottery 44.5  10.8 

Paper 39.4  10.9 

Chemical  industry 49 . 4  10 . 7 

Leather  and  similar  products 37 . 7  10 . 7 

Agriculture  and  forestry 46 . 9  10 . 2 

Transportation    44.8  9.8 

Food  and  drink 43.4  9.6 

Wood  and  cut  materials   38.8  9.2 

Fats,  oils,  varnishes,  etc 41 . 5  9.1 

Gas  works 59 .9  9.0 

Textiles    40.5  8.9 

Hotels  and  restaurants 32.5  8.8 

Clothing  and  cleaning 32.2  8.6 

Musical  and  scientific  instruments 31 . 7  8.1 

Hides,  leather,  etc 36.0  7.7 

Engineers  and  firemen 35.3  7.4 

Office  employees 21.6  5.8 

FEMALES 

Textiles   69.9  19.3 

Paper 55.2  16.3 

Printing  and  publishing 50.4  15.8 

Agriculture  and  forestry 60.8  14.2 

Clothing  and  cleaning 41 . 0  12 . 4 

Hotels  and  restaurants 40. 9  12 . 2 

Office  employees 21.4  7.0 


218  SOCIAL  INSURANCE 

Needless  to  say,  the  variations  become  even  more  pronounced 
when,  instead  of  large  industrial  groups,  definite  occupa- 
tions are  compared.  Lack  of  space  forbids  a  more  detailed 
analysis  of  such  data  in  these  pages.  A  few  characteristic 
illustrations  may,  however,  be  given  here. 

Thus  the  average  rate  of  sickness  per  100  male  persons,  35- 
44  years  of  age,  which  shows  the  maximum  of  65.8  in  the 
cement  and  lime  industry  in  the  preceding  table,  reaches  72.8 
for  asphalt  workers  and  84.1  for  construction  workers.  The 
average  loss  of  time  reaches  18  days  for  asphalt  workers,  18.6 
for  construction  workers,  and  19.9  days  for  stone  and  marble 
cutters,  and  drops  to  4.7  for  butchers  and  6.7  for  bookkeepers. 
Saleswomen  and  female  clerks  show  19  cases  of  sickness  per 
100,  laundresses  40.2,  cooks  40.8,  and  wool-combers  69.1,  while 
the  number  of  days  of  sickness  for  these  four  trades  selected 
at  random  is  6.5,  11.2,  15.2,  and  18.5.  Such  illustrations  might 
be  continued  ad  infinitum. 

A  medical  classification  of  diseases  is  a  very  complex  affair. 
The  Leipsic  Fund,  of  whose  statistics  such,  extensive  use  has 
been  made,  lists  334  diseases.  The  Austrian  classification 
is  almost  as  voluminous.  The  United  States  Census  recog- 
nizes over  200  causes  of  death.  It  would  be  both  difficult  and 
useless  to  go  fully  into  such  a  classification.  But  besides  its 
medical  significance,  there  is  also  a  social  aspect  to  the  dis- 
tribution of  ailments  by  main  groups  of  organs.  The  influence 
of  occupation  upon  the  sick-rate,  which  we  have  established 
by  statistical  illustrations,  is  exercised  primarily  in  one  of 
two  ways :  either  in  a  general  lowering  of  vitality  and  resist- 
ance power,  or  by  creating  specific  dangers  to  certain  organs, 
specific  predispositions  to  certain  diseases.  It  is  difficult  to 
tell  which  is  the  more  important  factor.  The  general  unsatis- 
factory conditions  of  life  of  the  working  class  as  far  as  food, 
clothing,  unsanitary  housing,  overwork,  etc.,  are  concerned, 
will  express  themselves  in  a  general  increase  of  the  sick-rate, 
but  the  special  dangers  may  show  themselves  in  an  increased 
frequency  of  certain  diseases. 

According  to  the  experience  of  the  Leipsic  Fund,  sickness 
of  wage-workers  is  mainly  due  to  the  following  conditions: 
Diseases  of  the  organs  of  respiration  (exclusive  of  tuberculosis 
and  pneumonia,  classified  as  infectious  diseases),  over  one- 
fifth  ;  infectious  diseases,  another  fifth;  organs  of  locomotion, 


ECONOMIC  ASPECTS  OF  DISEASE  219 

mostly  rheumatic  affections,  nearly  one-sixth,  and  organs  of 
digestion  about  one-eighth,  and  skin  diseases,  one  fifteenth; 
these  five  groups  claiming  nearly  80#  of  all  illness  for  males. 

Among  women  the  distribution  is  somewhat  different.  The 
first  place  belongs  to  general  diseases,  such  as  anemia,  which 
are  followed  by  diseases  of  digestion,  infectious  diseases,  and 
respiration.  Diseases  of  general  organs  are  more  frequent 
and  rheumatic  diseases  very  much  less  so,  the  first  four  classes 
claiming  about  two-thirds  of  all  diseases. 

It  is  quite  interesting  to  follow  up  these  various  groups  of 
diseases  through  various  occupational  groups.  There  is,  for 
instance,  the  most  frequent  group  of  diseases  of  the  organs 
of  respiration  (exclusive  of  tuberculosis  and  pneumonia). 
Taking  the  male  workmen  between  35  and  44,  this  group  of 
diseases  claimed  1,310  sick  days  for  each  1,000  persons.  Now, 
let  us  see  how  this  average  was  affected.  We  find  that  it 
fluctuated  between  3,504  for  marble  and  stone  cutters  and 
427  for  butchers.  Under  these  circumstances,  how  productive 
is  any  theory  which  will  throw  upon  the  workingman  the  re- 
sponsibility for  the  diseases  of  the  respiratory  organs  ?  Is  it  his 
unwise  living,  his  neglect  of  laws  of  hygiene,  or  was  his  gravest 
error  in  becoming  a  stone-cutter  rather  than  a  butcher?  And 
then  there  is  tuberculosis — the  white  plague  of  the  working- 
man.  Between  the  ages  of  25  and  34  stone  and  marble  cut- 
ters show  2,070  sick  days  per  1,000  persons,  and  between 
35  and  54,  5,482  days.  Upholsterers  show  4,704  days — almost 
as  bad — but  asphalt  workers  only  330  days  for  both  age 
groups. 

Digestive  disturbances  are  frequent — 15$  of  all  cases  of 
sickness.  They  are  not  so  severe  as  other  diseases,  and,  there- 
fore, only  claimed  less  than  11$  of  the  time  lost.  Surely,  here 
is  an  influence  of  life  rather  than  of  work,  possibly  an  eco- 
nomic, but  not  an  industrial  or  occupational  disease.  Yet  there 
must  be  some  reason  why  the  gas-workers  lost  1,414  days  per 
1,000  employees  from  this  cause  alone,  and  paper  manufac- 
turers 1,243  days,  and  hotel  employees  only  561  days.  And 
among  the  females,  the  textile  employees  had  2,210  days  of 
sickness  per  1,000  persons  from  digestive  organs,  and  the 
hotel  workers  only  1,075  days,  and  bookkeepers  only  696  days. 

Again,  there  is  the  large  group  of  "  diseases  of  organs  of 
locomotion/'  rheumatic  and  bone  and  joint  diseases  claiming 


220  SOCIAL  INSURANCE 

about  995  days  per  1,000  male  persons  per  annum.  These 
are  primarily  diseases  of  exposure  and  of  hard  muscular  ef- 
fort. The  average,  therefore,  rises  to  1,564  among  building 
trades,  1,439  in  agriculture  and  forestry,  1,973  among  gas- 
works employees,  and  2,128  among  cement  and  lime  workers, 
but  it  is  only  358  among  office  employees,  and  701  in  the 
clothing  industry.  Here,  therefore,  the  industrial  influence 
is  in  some  eases  six  or  seven  times  stronger  than  personal  habits 
are  in  producing  the  diseases.  The  nervous  diseases  are  less 
frequent,  though,  perhaps,  more  serious  when  they  occur. 
Their  frequency  is  expressed  in  a  loss  of  457  days  per  1,000 
employees.  But  this  average  rises  to  1,469  for  office  employees, 
1,772  for  engravers,  and  2,173  for  tailors. 

And  if  these  influences  are  so  strong  as  between  one  occu- 
pation and  another,  one  industry  and  another,  they  must  ap- 
pear still  stronger  when  the  wage-workers  are  compared  with 
the  more  prosperous  classes  of  the  community.  Unfortunately, 
the  statistical  material  available  for  this  purpose  is  rather 
meager.  In  Professor  Irving  Fisher's  Report  on  National 
Vitality,  a  great  many  interesting  illustrations  are  given  of 
the  variations  of  the  death-rate.  Thus,  for  instance,  in  the 
United  States,  the  death-rate  for  the  mercantile  class  was 
determined  to  be  about  12  per  1,000,  for  the  clerical  em- 
ployments, 13  1-2 ;  for  the  professional  classes,  about  15  1-3 ; 
and  for  the  working  class  and  servant  class,  20.2.  Industrial 
insurance  companies  show  a  very  much  higher  mortality 
rate  than  ordinary  insurance  companies;  "  wealthy  "  blocks 
in  cities  have  been  found  to  have  a  lower  mortality  rate  than 
"  slum  "  blocks,  etc.  It  may  safely  be  assumed  that  the  de- 
grees of  sickness  bear  some  proportion  to  the  mortality  rate. 
It  is  sufficient  to  refer  to  the  "  white  plague,"  which  in  the 
United  States,  according  to  the  census  data,  causes  a  mortality 
of  165.8  per  100,000  in  the  mercantile  class,  147.2  in  agri- 
culture and  outdoor  occupations,  and  376  in  the  laboring  and 
servant  class.  Beginning  with  540.5  per  100,000  among 
marble  and  stone  cutters,  the  list  gradually  descends  through 
cigar-makers,  476.9;  compositors  (453.9),  servants  (430.3), 
and  through  fifty  other  groups  with  a  declining  mortality, 
until  from  the  wage-working  class  we  are  gradually  transferred 
to  professional  and  business  classes,  and  finally  reach  the 
culminating  group  of  "  bankers  and  brokers,  and  officials  of 


ECONOMIC  ASPECTS  OF  DISEASE  221 

companies,"  with  a  rate  of  mortality  from  tuberculosis  which 
is  only  92.1  per  100,000,  or  about  one-sixth  of  that  for  stone- 
cutters. 

An  illness,  like  an  accidental  injury,  results  in  immediate 
disability  unless  it  is  quite  localized  in  its  nature.    Any  case 
of  illness  may  lead  either  to  temporary  disability  of  shorter 
or  longer  duration,  when  the  disease  results  in  a  complete  cure, 
or  to  permanent  disability  in  case  of  incurable  disease,  either 
total  or  partial — a  condition  known  better  as  invalidism,  and 
finally  in  death.    As  almost  all  cases  of  death  are  preceded  by 
illness  of  longer  or  shorter  duration,  the  fatal  result  is  more 
frequent  in  case  of  sickness  than  in  case  of  accident.    In  fact, 
according  to  the  much  quoted  statistics  of  the  Leipsic  Fund, 
nearly  2$  of  all  cases  of  illness  end  fatally,  constituting  about 
8  per  1,000  of  the  membership.    Naturally,  the  frequency  of 
fatal  results  is  influenced  greatly  by  age — thus  becoming  a 
factor  of  age  as  much  as  of  illness.    As  to  the  frequency  of 
invalidity,  data  are  very  unsatisfactory,  though  in  cases  of 
pulmonary  diseases,  heart  diseases,  and  similar  conditions,  the 
proportions  must  be  very  high.    In  fact,  both  these  conditions : 
premature  death  from  '  *  natural  ' '  conditions,  i.e.,  from  illness, 
and  invalidity  or  premature  old  age  are  such  important  prob- 
lems in  themselves  as  to  constitute  separate  chapters  in  the 
program  of  social  insurance.     As  a  matter  of  practical  ex- 
pediency, the  problem  of  sickness  insurance,  perhaps  without 
good  logical  reasons,  in  most  countries  is  made  to  cover  only 
the  temporary  conditions  of  sickness,  though  the  recent  British 
National  Insurance  System  is  a  notable  exception  to  this  rule. 
That  this  appalling  amount  of  sickness  represents  a  very 
serious  economic  problem  for  the  workingman,  does  not  require 
any   elaborate    demonstration.      There    is   a   strong   element 
of  tragedy  in  all  human  illness,  in  the  pain  of  the  sufferer,  and 
in  the  anxiety  of  those  surrounding  him.    But  this  is  purely 
a    sentimental    consideration    as    compared    with    the    stern 
economic  necessity  that  arises  when  the  bread-winner  himself 
falls  victim  to  disease.     Whatever  has  been  said  concerning 
the   problem   in   connection   with   accidents   applies   equally 
well  to  sickness,  though  with  much  greater  strength.    As  yet 
neither  law  nor  public  opinion  in  the  United  States  has  recog- 
nized either  the  individual  responsibility  of  the  employer,  nor 
the  collective  responsibility  of  the  industry,  nor  even  the 


222  SOCIAL  INSURANCE 

social  responsibility  of  society  for  the  illness  of  the  working- 
man.  Even  in  the  absence  of  workingmen  's  compensation,  and 
outside  of  all  legal  liability  on  the  part  of  the  employer,  it  is 
quite  usual  for  a  fairly  humane  employer  to  continue  payment 
of  wages  for  some  time  after  the  accident  has  occurred.  But 
it  is  just  as  customary  to  make  deductions  for  absence  on  ac- 
count of  illness.  Thus,  the  entire  weight  of  the  cost,  both 
the  loss  of  earnings  and  the  additional  expense,  falls  upon 
the  wage-earner,  the  average  sick-rate  of  10  to  14  days  per 
annum  representing  a  loss  of  4$  of  wages.  The  average  dura- 
tion of  a  case  of  illness,  however,  is  greater — 20  to  24  days — 
thus  representing  a  loss  of  6$  to  8$  of  wages. 

It  may  be  argued  that  the  sickness  frequency  is  so  high 
that  some  sickness  must  be  accepted  as  a  normal  feature  of 
life,  and,  therefore,  it  is  not  at  all  an  exceptional  emergency 
such  as  calls  for  the  complex  mechanism  of  protection  by 
insurance.  Furthermore,  it  is  quite  true  that,  as  the  Webbs 
have  stated,  "  the  most  obvious  and  the  most  effective  method 
of  preventing  the  destitution  that  sickness  causes  is  to  prevent 
the  sickness  itself.  Now,  without  for  a  moment  dreaming  that 
all  sickness  can  be  prevented,  it  is  demonstrable  that  a  great 
deal  of  it  can  be." 

This  opens  a  fascinating  vista  of  the  future  possibilities 
of  preventive  medicine,  social,  municipal,  industrial,  and  per- 
sonal hygiene  and  education.  But  just  as  evidently,  this  does 
not  at  all  solve  the  problem  of  that  amount  of  sickness  and 
resulting  distress  which,  whether  theoretically  inevitable  or 
not,  is  with  us  and  will  be  for  some  time  to  come  at  least. 

Meanwhile,  sickness  is  one  of  the  most  active  forces  which 
interrupt  the  workingman's  income,  and,  therefore,  must  be 
one  of  the  most  active  causes  of  poverty  and  pauperism. 

We  have  quoted  above  the  estimate  of  the  Commission  on 
Industrial  Diseases  that  the  total  loss  to  the  American  work- 
ing class,  due  to  illness,  amounts  to  $366,000,000  of  lost 
wages  and  $285,000,000  for  medical  aid,  etc.,  making  a  total 
of  over  $650,000,000  for  the  33,500,000  wage-earners.  This 
would  mean  an  average  loss  of  some  $20  for  each  wage-worker, 
or  some  3#  of  his  earnings.  But  these  averages,  like  all  other 
averages,  are  formed  by  a  combination  of  many  cases  of  vari- 
able duration.  An  interruption  of  a  few  days  may  not  radi- 
cally upset  the  economic  equilibrium  of  the  wage-worker's 


ECONOMIC  ASPECTS  OF  DISEASE  223 

family.  But  at  the  other  end  are  the  serious  cases  of  illness, 
less  frequent  but  more  destructive  in  their  results.  For  this 
reason,  the  following  data,  derived  from  the  U.  S.  Bureau  of 
Labor  Keport  on  Cost  of  Living,  are  quite  significant. 

NUMBER  OF  HEADS  OF  FAMILIES  IDLE  BECAUSE  OF  SICKNESS,  ALONE 
AND  IN  COMBINATION  WITH  OTHER  CAUSES  (ACCORDING  TO  THE 
NUMBER  OF  WEEKS  IDLE)  .  EIGHTEENTH  ANNUAL  REPORT  BUREAU 
OF  LABOR,  p.  290. 

Less  than  2  weeks   863     15  or  16  weeks 108 

3  or  4  weeks   813     17  or  18    "        83 

5  or  6       "        446     19  or  20    "        104 

7  or  8      "        355     21—30       "        235 

9  or  10    "        248     31-40       "        97 

11  or  12    "        219     41—51       " 37 

13  or  14    "        156  

3764 

And  there  is  something  besides  the  money  loss  only.  It  is 
the  serious  loss  in  health  due  both  to  working  while  in  poor 
health  and  the  absence  of  proper  medical  attention.  The 
investigation  of  the  U.  S.  Bureau  of  Labor,  which  was  dealing 
with  fairly  prosperous  workingmen's  families,  showed  that 
out  of  2,167  families,  1,969  had  expenditures  for  sickness  or 
death,  and  that  the  average  expenditure  for  these  families 
was  $26.78.  Probably  a  large  proportion  of  it  represented 
funeral  expenses,  and  in  any  case  it  included  all  sickness  ex- 
penses, physicians,  drugs,  etc.,  for  the  entire  normal  family 
of  4  to  5  persons.  This  certainly  does  not  indicate  a  proper 
supply  of  medical  help. 

A  serious  illness,  therefore,  being  a  calamity,  it  is  quite 
evident  that  a  purely  individual  method  of  meeting  the  prob- 
lem on  the  basis  of  individual  savings,  individual  provision, 
would  be  ruinous  to  the  workingmen's  budget. 

Instinctively,  without  any  technical  knowledge  of  the  funda- 
mental principles  of  actuarial  science,  but  with  a  subconscious 
appreciation  of  the  advantages  of  the  distribution  of  loss,  the 
wage-working  class  has  developed  its  own  method  of  meet- 
ing the  problem  of  sickness  through  organization  of  voluntary 
mutual  sick  benefit  funds,  which  from  very  small  beginnings 
have  grown  into  a  structure  of  tremendous  size  and  impor- 
tance, and  upon  these  a  still  greater,  still  more  imposing 
structure  of  national  compulsory  sick-insurance  was  eventu- 
ally built. 


CHAPTER  XIV 
VOLUNTARY  SICKNESS  INSURANCE  IN  EUROPE 

THE  beginnings  of  systematic  sickness  insurance  are  to  be 
looked  for  in  co-operative  efforts  of  the  workers  themselves. 
They  have  rapidly  grown,  mainly  within  the  last  fifty  years, 
as  a  quite  natural  result  of  the  rapid  development  of  modern 
industry.  And  while  not  at  all  limited  to  wage-workers,  they 
have  been  developed  mainly  by  them.  The  middle  classes  and 
the  agricultural  population  were  very  much  less  in  need  of 
them.  In  some  countries  they  have  achieved  a  very  great 
growth  and  accomplished  results  of  importance  to  the  wel- 
fare of  the  working  class. 

Originally  they  were  primarily  charitable  organizations — a 
certain  number  of  workers,  usually  in  one  trade,  were  united 
to  help  out  the  needy  ones  among  themselves.  But  this  co- 
operative charity,  this  mutual  relief  gradually  assumed  more 
definite  forms— money  contributions  substituted  relief  in  kind, 
amounts  of  both  relief  and  contributions  became  semi-con- 
tractual obligations,  and  thus  a  system  of  insurance  grew  up 
out  of  a  system  of  mutual  help.  With  a  slowly  accumulated 
empirical  experience  instead  of  scientific  actuarial  computa- 
tion, the  workmen  realized  for  themselves  the  advantages  of 
the  essential  principle  of  insurance — the  principle  of  distribu- 
tion of  loss.  The  absence  of  strict  actuarial  basis  is  often 
quoted  as  evidence  against  them,  and  it  is  forgotten  that  all 
other  forms  of  insurance, — life,  fire,  marine, — have  grown  up 
in  the  same  experimental  way,  and  that  even  to-day,  the  entire 
field  of  casualty  insurance  is  still  very  largely  in  the  same 
unscientific  position. 

The  beginnings  and  the  early  stages  of  this  development 
owed  everything  to  the  spirit  of  self-help  of  the  workman  and 
nothing  to  any  constructive  policies  of  the  state.  They  were 
altogether  spontaneous  and  voluntary  in  many  cases,,  and  that 
still  holds  true  of  many  countries.  These  societies  for  mutual 
help  are  known  in  different  countries  under  various  names. 


VOLUNTARY  SICKNESS  INSURANCE  225 

They  are  the  "  friendly  societies  "  of  Great  Britain,  the 
"  societes  de  secours  mutuels  "  of  France  and  Belgium,  the 
11  Krankenkassen  "  of  the  Germanic  countries,  the  "  Societa 
di  Mutuo  Soccorso  ' '  of  Italy,  the  ' '  Sygekassen  ' '  of  Denmark, 
etc.  Only  in  a  few  of  these  designations  is  their  importance 
in  the  field  of  sickness  conveyed,  for  they  are  not  limited  to 
this  field  alone.  They  undertake  various  functions,  sometimes 
separately  and  sometimes  one  society  combining  various  func- 
tions of  diverse  kinds.  Funeral  aid  was,  perhaps,  the  earliest 
form  of  mutual  aid — given  in  care  and  work  and  personal 
attention  of tener,  perhaps,  than  in  money.  Societies  for  making 
small  loans  to  the  needy,  for  providing  instruments  of  trade 
are  not  infrequent,  and  often  educational  activity  is  com- 
bined with  financial  aid.  But  in  all  countries  without  any 
exception,  sick-benefits  have  become  the  prominent  feature 
of  these  mutual  aid  societies,  often  combining  them  with  relief 
of  accidents  when  nojjystem  of  compensation  exists. 

Within  the  last  fifty  years  the  membership  in  these  mutual 
benefits  has  shown  a  very  rapid  increase.  Perhaps  their 
greatest  development  may  be  found  in  Great  Britain.  There 
were  in  that  country,  before  the  National  Insurance  Act  went 
into  effect,  nearly  6,000,000  members  of  the  so-called  Regis- 
tered Friendly  Societies  in  a  population  of  some  45,000,000, 
or  nearly  13$.  In  France  the  total  number  of  members  is 
nearly  5,000,000,  including  pupils'  societies.  The  adult  mem- 
bers number  nearly  4,000,000  persons  in  a  population  of 
40,000,000,  or  about  10#.  In  Belgium  there  were,  in  1908, 
388,000  members  of  sick-benefit  societies  in  a  population  of 
7,500,000,  or  less  than  5#. 

This  system  of  mutual  aid  has  achieved  a  very  high  degree 
of  development  in  the  Scandinavian  countries,  where  the  spirit 
of  voluntary  co-operation  is  extensive,  and  where  not  only  the 
wage-workers  but  the  farming  community  have  become  accus- 
tomed to  this  organization.  In  1907  the  recognized  societies 
of  Denmark  numbered  over  550,000  members  in  a  population 
of  2,000,000,  or  over  27$.  In  Sweden  there  were,  in  1907, 
544,000  in  a  population  of  5,400,000,  or  10#.  In  Latin  coun- 
tries outside  of  France  the  development  of  mutual  benefit 
societies  was  very  much  less  important.  Thus,  in  Italy  they 
numbered,  in  1904,  only  926,000  in  a  population  of  33,000,000, 
or  less  than  3$.  In  Spain  there  were  in  the  same  year  only; 


226  SOCIAL  INSURANCE 

85,000  in  a  population  of  18,000,000,  or  less  than  one-half  of 
1$.  The  development  of  the  voluntary  mutual  benefit  societies 
and  their  membership  may  be  considered  a  fair  index  of  the 
economic  and  social  development  of  the  country. 

This  important  development  is  the  result  of  growth  mainly 
during  three  or  four  decades.  Thus,  in  France  the  number 
of  active  members  of  adult  societies  was  only  250,000  in  1850, 
less  than  one-half  a  million  in  1860,  917,000  in  1880,  1,200,000 
in  1890,  1,742,000  in  1900,  and  2,545,000  in  1905,  increasing 
tenfold  in  55  years,  and  more  than  doubling  within  the  fifteen 
years.  In  Denmark  their  membership  increased  from  116,000 
in  1893,  to  553,000  in  1907,  or  nearly  fivefold  within  a  decade 
and  a  half.  In  Italy,  where  the  development  was  very  much 
less  important,  there  were  in  1873,  219,000  members ;  in  1885, 
730,000 ;  in  1894,  936,000.  In  Great  Britain  the  membership 
of  friendly  societies  has  grown  within  the  brief  period  of  six 
years  (1899-1905)  from  5,217,000  to  5,900,000,  or  over  13$. 

Sickness  insurance  is  the  essential  function  of  these  so- 
cieties as  unemployment  benefits  are  an  important  feature  of 
trade  unions.  But,  in  addition,  many  other  forms  of 
relief  are  granted.  In  Great  Britain,  for  instance,  the  law 
regulating  the  friendly  societies  permits  the  following  opera- 
tions :  Belief  in  case  of  sickness  or  other  infirmity  and  in  old 
age,  and  the  care  of  widows  and  orphans;  birth  and  death 
benefits;  travel  benefits  while  in  search  of  employment,  and 
benefits  when  in  distress  and  in  case  of  shipwreck,  etc. ;  endow- 
ments ;  insurance  against  loss  of  tools  by  fire. 

Thus  the  law  authorizes  for  the  friendly  societies  (keeping 
in  mind  the  older  conditions  before  the  advent  of  the  National 
Sick  Insurance  System,  of  which  more  anon)  all  forms  of 
workmen's  insurance:  sickness,  accidents,  invalidity,  funeral, 
maternity,  widows'  and  orphans',  and  unemployment.  But, 
as  a  matter  of  fact,  the  granting  of  relief  in  sickness  is  the 
main  function,  to  which  many  of  the  societies,  especially  the 
smaller  ones,  limit  themselves  to  the  exclusion  of  all  others. 
Thus,  out  of  a  total  expenditure  of  some  $28,000,000 
for  relief  in  1905,  sickness  and  medical  aid  claimed  some 
$20,000,000. 

Because  a  good  many  of  these  societies  in  France  provide 
for  old-age  pensions,  the  erroneous  impression  has  gained 
ground  that  that  is  their  main  function.  As  a  matter  of  fact, 


VOLUNTARY  SICKNESS  INSURANCE  227 

nearly  all  of  the  20,000  mutual  benefit  societies  provide  sick 
benefits,  and  only  some  1,200,  or  6$,  old-age  pensions,  while 
some  7,000  societies  grant  funeral  benefits,  and  some  2,000 
give  pensions  to  widows  and  orphans.  The  figures  quoted 
emphasize  the  point  that  sick-insurance  was  felt  by  the  work- 
ingmen  of  all  countries  to  be  both  the  most  necessary  and  the 
most  feasible  form  of  mutual  insurance. 

Quite  naturally,  as  long  as  these  mutual  societies  remain 
free  vehicles  of  voluntary  insurance,  there  is  a  field  for  the 
widest  difference  in  every  feature  of  their  existence,  their  ad- 
ministrative and  financial  organization,  their  achievements, 
their  benefits,  their  premiums,  and  so  forth — and  also  in  their 
success  and  their  financial  soundness.  The  problem  is  alto- 
gether different  in  those  countries  where  these  mutual  benefit 
societies  have  been  embodied  in  a  more  or  less  unified  system 
of  sickness  insurance,  and  for  this  reason  these  countries  will 
be  treated  separately.  At  present  we  have  in  mind  largely 
the  situation  in  Great  Britain  before  the  National  Act  went 
into  effect  and  in  France,  Italy,  Belgium,  and  Spain.  The  es- 
sential function  is  the  granting  of  a  money  subsidy  during  the 
duration  of  sickness.  Another  function  equally  important, 
perhaps,  is  the  granting  of  medical  aid  through  a  systematic 
organization  of  medical  aid  given  by  physicians  regularly 
employed  for  this  purpose.  The  amount  of  the  financial  sub- 
sidy known  as  a  sick-benefit  is  subject  to  wide  fluctuations, 
but  seldom  in  the  voluntary  societies  is  it  made  dependable 
upon  the  amount  of  wages.  Usually  it  is  a  flat  amount  per 
diem,  though  differing  for  the  male  and  female  members  in 
case  of  a  mixed  organization.  In  so  far  as  there  is  a  certain 
uniformity  in  the  rate  of  sick-benefits,  it  is  a  natural  growth 
influenced  by  the  standard  of  wages,  and  the  local  conception 
of  what  constitutes  an  ' '  existenz  minimum. '  '  In  France  these 
daily  benefits  amount  to  1  or  2  francs,  with  an  average  of 
about  1  1-2  francs  (some  30  cents).  In  Italy  the  level  is 
even  lower — some  seven-tenths  of  all  societies  grant  one  lira  or 
less  per  day  (19  cents).  The  sick-benefits  were  considerably 
higher  in  Great  Britain,  at  least  as  far  as  the  large  societies 
are  concerned.  Thus,  the  benefits  for  the  Hearts  of  Oak 
Benefit  Society  (one  of  the  largest  in  England)  were  18s. 
($4.38)  per  week,  for  the  first  twenty-six  weeks,  and  9s. 
($2.19)  for  the  subsequent  twenty-six  weeks.  Evidently 


228  SOCIAL  INSURANCE 

there  must  be  a  natural  minimum  to  the  sick-benefit, 
below  which  it  cannot  descend  without  making  the  sick- 
insurance  worthless  to  its  members.  But  the  differences 
in  strength  of  various  societies  express  themselves  in  more 
subtle  ways;  namely,  in  various  time  limits.  Perhaps  the 
greatest  diversity  is  found  in  the  length  of  time  during  which 
such  benefits  are  given.  There  usually  is  one  limit  for  each 
case  of  illness.  Some  societies  may  grant  support  for  four 
weeks,  others  for  eight,  thirteen,  or  twenty-six,  or  even  a 
year.  When  a  society  dares  to  go  beyond  that  it  enters  the 
much  less  safe,  though  perhaps  even  more  necessary,  field  of 
invalidity  insurance. 

These  limitations  affect  a  comparatively  small  proportion 
of  cases  of  sickness,  as  only  a  few  last  over  thirteen  or  twenty- 
six  weeks.  But  these  are  just  the  cases  in  which  aid  is  most 
necessary.  Another  limit  is  often  established  for  the  total 
amount  of  assistance  to  be  rendered  to  any  one  member  during 
one  year.  The  purposes  of  these  limitations  are  obvious — 
they  are  necessary  to  prevent  excessive  depletion  of  the  funds. 
All  cases  of  illness  may  be  subsidized,  or  only  such  as  extend 
over  a  certain  period — say  three  days,  one  week,  or  so.  In  ad- 
dition there  may  be  a  waiting  time  between  admission  and  the 
right  of  subsidy,  so  as  to  prevent  the  admission  of  new  mem- 
bers who  may  be  influenced  by  the  feeling  or  knowledge  of 
approaching  illness. 

Similarly,  there  are  variations  in  the  financial  organization. 
Perhaps  the  most  primitive  is  the  assessment  system,  where  the 
actual  expenses  incurred  are  distributed  among  the  member- 
ship. The  advantage  of  an  assessment  society  is  that  it  can- 
not develop  any  deficits.  But  it  is  a  system  that  is  not  likely 
to  prove  attractive  in  the  long  run  in  competition  with 
societies  running  on  definite  dues,  as  they  create  the  fear  of 
excessive  cost. 

When  regular  dues  are  collected,  either  on  a  monthly  or 
weekly  (rarely  an  annual)  plan,  the  very  important  problem 
arises :  are  the  dues  on  a  flat  even  rate,  or  is  any  effort  made 
to  adjust  them  to  the  sick-risk,  i.e.,  to  construct  them  on  an 
actuarial  basis?  Men  and  women  differ  as  to  their  sick-rate, 
and  it  is  the  usual  custom  to  establish  different  rates  for  them. 
But  still  greater  is  the  difference  in  the  sick-rate  at  different 
ages,  and  yet  an  adjustment  of  the  dues  to  age  is  exceedingly 


VOLUNTARY  SICKNESS  INSURANCE          229 

rare,  especially  among  the  smaller  organizations.  For  one 
thing,  the  necessary  knowledge  of  fact  is  totally  lacking,  so 
that  a  flat  rate  for  all  ages  is  the  usual  procedure.  We  shall 
see  presently  what  serious  difficulties  this  one  problem  raises 
in  the  entire  domain  of  voluntary  sick-insurance. 

Another  actuarial  fact,  already  emphasized,  is  the  difference 
in  sick-rate  of  different  trades  and  occupations.  The  dues 
are  but  seldom  adjusted  to  the  differences  of  occupation,  where 
members  of  several  occupations  are  found  in  the  sick-benefit 
society.  But  this  difficulty  is  to  some  extent  obviated  by  the 
organization  of  societies  on  occupational  lines. 

In  fact,  while  the  forms  of  organization  of  these  societies 
are  many,  the  occupational  or  industrial  organizations  are, 
at  least  in  some  countries,  predominant.  This,  besides  the 
actuarial  advantages  of  a  fairly  uniform  sick-rate,  is  also  the 
natural  result  of  usual  associations.  Sick-benefit  societies  may 
be  organized  by  employees  of  a  single  establishment,  when  they 
are  known  as  establishment  funds,  or  of  several  establish- 
ments of  similar  nature  in  the  same  locality,  or  by  persons  of 
the  same  trade,  such  as  carpenters  or  machinists.  All  these 
forms  follow  the  lines  of  usual  selection  in  ordinary  human 
intercourse.  And  since  all  or  most  mutual  aid  societies  are  not 
purely  business  organizations,  where  financial  considerations 
are  uppermost,  but  have  many  social  activities  as  well,  and 
since  they  must  draw  upon  this  fountain  of  social  solidarity 
for  the  large  amount  of  unpaid  administrative  work  necessary 
in  such  organization,  it  is  quite  important  that  they  should 
follow  such  natural  lines  of  division.  The  strongest  and  largest 
sick-benefit  societies  in  almost  all  industrial  countries  are  to 
be  found  among  the  miners  and  railroad  employees,  organized 
on  industrial  if  not  occupational  lines. 

The  "  shop  club  "  of  England,  known  in  the  United 
States  as  an  establishment  fund,  is  an  organization  on  trade 
lines  which  has  features  of  its  own,  primarily  that  it  is 
either  openly,  or  in  a  somewhat  disguised  form,  compulsory, 
and  because  of  this  very  feature,  is  often  objectionable  to  the 
workman,  who  may  prefer  an  affiliation  of  his  own  choice. 
Outside  of  this,  the  development  of  large  organizations  on  na- 
tional lines  in  England  has  discouraged  this  differentiation 
by  occupations  or  trades.  Such  organization  on  trade  lines  is 
not  always  possible  in  small  localities  or  localities  with  largely 


230  SOCIAL  INSURANCE 

diversified  industries,  and  there  the  local  organization  is  the 
natural  result. 

In  size  the  widest  margin  of  variation  is  found,  from  a  few 
score  to  hundreds  of  thousands  constituting  a  society.  In 
most  cases  the  origin  is  small,  but  among  many  societies  that 
perish,  a  few,  perhaps  because  of  better  management,  will 
survive  and  grow  rapidly.  The  underlying  principle  being 
that  of  distribution  of  loss,  an  insufficient  membership  will 
destroy  the  usefulness  of  the  organization,  especially  in  case 
of  a  local  epidemic.  As  a  remedy  against  this  situation, 
affiliations  have  arisen.  They  are  especially  popular  in  Eng- 
land and  also  in  the  United  States,  under  the  name  of  fraternal 
orders.  In  many  of  them  the  co-operative  and  social  spirit  is 
gradually  vanishing,  and  the  financial  spirit  predominates, 
transforming  a  mutual  aid  society  into  a  large  mutual  insur- 
ance society,  though  in  other  cases,  by  various  more  or  less 
artificial  means  the  fraternal  spirit  is  successfully  preserved. 

This  very  brief  and,  of  necessity,  superficial  description  of 
the  general  features  of  insurance  as  conducted  by  mutual  aid 
societies,  is  nevertheless  sufficient  to  emphasize  the  fact  that 
it  is  impossible  to  draw  accurate  conclusions  from  figures  of 
membership  only.  It  is  impossible  to  extend  one  judgment  as 
to  sufficiency  and  insufficiency  of  the  work  of  mutual  aid  so- 
cieties over  all  of  them.  The  statistics  of  membership  show 
a  rapid  growth,  and,  therefore,  are  evidence  of  the  necessity 
of  this  form  of  insurance.  It  has  often  been  argued  that  they 
also  prove  that  the  workingmen  are  able  to  solve  the  entire 
problem  for  themselves  collectively  if  not  individually.  If 
the  mutual  aid  or  friendly  societies  were  looked  down  upon 
with  suspicion  some  twenty-five  years  ago,  as  possible  car- 
riers of  the  revolutionary  spirit,  they  have  in  recent  years 
been  given  an  equally  imposing  task  of  solving  the  entire  prob- 
lem of  the  workmen's  destitution.  The  sermon  of  voluntary 
individual  thrift  has  been  modified  so  as  to  become  mutual  or 
collective  thrift.  The  enormous  advantage  of  these  friendly  or 
mutual  benefit  societies  was  claimed  to  be  that  they  built  up 
character  at  the  same  time  that  they  yielded  necessary  financial 
assistance.  Most  of  these  claims  are  eminently  sound.  There 
is  no  doubt  that  the  average  intelligence,  moral  and  economic 
strength  of  members  of  these  organizations  in  all  countries  is 
very  much  higher  than  of  the  workingmen  outside  these  or- 


VOLUNTARY  SICKNESS  INSURANCE    231 

ganizations.  And  from  a  practical  point  of  view  their  activity 
was  of  great  economic  importance.  Eloquent  evidence  of  this 
may  readily  be  obtained  from  the  data  concerning  the  mem- 
bership, the  accumulated  assets,  the  number  of  persons  helped 
and  the  amount  of  disbursements  for  mutual  aid. 

It  is  no  small  matter  that  in  Great  Britain,  for  instance,  the 
registered  friendly  societies  have  accumulated  funds  of  over 
$200,000,000  and  that  they  spent  over  $32,000,000  a  year,  of 
which  nearly  $28,000,000  went  for  actual  benefit  payments, 
while  the  receipts  have  reached  $40,000,000,  and  that  through 
these  accumulations  6,000,000  families,  primarily  wage-work- 
ers' families,  were  protected  against  the  ravages  of  sick- 
ness. 

In  France,  too,  the  figures  though  smaller,  are  quite  impos- 
ing. The  assets  had  reached  $82,000,000  by  the  end  of  1905, 
and  have  probably  increased  to  $100,000,000  by  this  time. 
The  revenues  amount  to  some  $12,000,000  to  $15,000,000,  and 
the  expenditures  some  $10,000,000.  Annually  in  France  about 
half  a  million  members  receive  sick-benefits,  and  some  quarter 
of  a  million  in  addition  only  medical  aid.  The  subsidiary 
lines  of  activity  also  loomed  up  in  significant  figures.  Thus, 
in  1905,  23,780  funeral  benefits  were  paid,  12,855  widows  and 
orphans,  9,068  aged  members,  and  4,454  incurables  were  as- 
sisted. 

There  can,  therefore,  be  no  question  as  to  the  useful  nature 
of  the  activity  of  the  friendly  societies.  Nevertheless,  the 
question  remains:  Are  the  mutual  societies  sufficient  to  meet 
the  problem  of  sick-insurance  for  the  working  classes  ?  And  in 
an  effort  to  answer  this,  the  first  question  that  arises  is — 
do  they  meet  the  requirements  of  the  entire  industrial  class? 
We  have  seen  that  the  percentage  of  the  population  insured 
in  such  societies  varies  in  the  various  countries.  In  Germany, 
under  a  system  of  compulsory  insurance,  over  21$  were  covered 
in  1908,  even  though  the  entire  industrial  population  was  not 
included  in  the  law  at  that  time.  Surely,  when  the  members 
constitute  only  10#,  5#,  or  less,  all  those  who  need  it  are  not 
protected.  Moreover,  as  the  membership  is  conditioned  upon 
voluntary  financial  contributions,  only  those  who  are  both 
willing  and  able  to  meet  the  expense  are  members  of  such 
societies,  i.e.,  the  workmen  who  perhaps  are  least  in  need  of 
it.  It  is  a  matter  of  common  observation  that  the  lowest 


! 


232  SOCIAL  INSURANCE 

groups  of  workingmen  do  not  enjoy  the  advantages  of  sick- 
benefit  societies. 

Though  friendly  societies  have  achieved  their  greatest  de- 
velopment in  Great  Britain,  even  there  less  than  one-half  of 
the  persons  needing  sickness  insurance  have  provided  them- 
selves with  it.  No  better  statement  of  the  situation  could  be 
made  than  the  simple  words  used  by  Hon.  Lloyd  George  in  his 
famous  speech  in  the  British  House  of  Commons  on  May  4, 
1911: 

"  What  is  the  explanation  that  only  a  portion  of  the  working  classes 
have  made  provision  against  sickness?  Is  it  they  consider  it  not 
necessary?  Quite  the  reverse.  In  fact  those  who  stand  most  in 
need  of  it  make  up  the  bulk  of  the  uninsured.  Why  ?  Because  very 
few  can  afford  to  pay  the  premiums  continuously  which  enable  a 
man  to  provide  against  these  contingencies.  .  .  .  There  are  a  mul- 
titude of  the  working  classes  who  cannot  spare  that,  and  who  ought 
not  to  be  asked  to  spare  it,  because  it  involves  the  deprivation  of 
children  of  the  necessities  of  life."  * 

The  financial  difficulties  in  the  way  of  voluntary  member- 
ship in  friendly  societies  find  their  strongest  expression  in  the 
large  number  of  lapses.  In  the  same  speech  Mr.  Lloyd  George 
makes  the  estimate  that  there  are  some  250,000  lapses  a  year. 
The  official  reports  for  1905  show  that  338,000  memberships 
were  discontinued  for  other  reasons  than  death  in  one  year — 
so  that  Lloyd  George's  estimate  is  not  excessive.  It  is  about 
4$  of  the  entire  membership,  and  the  Italian  reports  indicate 
that  in  that  country  also  about  4$  are  annually  dropped  for 
non-payment  of  dues.  "  It  means,"  says  Mr.  Lloyd  George, 
"  that  in  twenty  years'  time  there  are  5,000,000  lapses;  that 
is,  people  who  supported  and  formed  friendly  societies,  and 
who  have  gone  on  paying  premiums  for  weeks,  months,  and 
even  years,  struggling  along,  until  at  last,  when  a  very  bad 
time  of  unemployment  comes,  they  drop  out  and  the  premium 
lapses." 

Another  serious  difficulty  with  the  mutual  benefit  societies 
is  their  financial  instability  or  the  danger  of  such  instability. 
This  arises  from  many  causes. 

The  simplest  cause,  perhaps,  is  the  danger  of  dishonest 
management.  This  has  ruined  many  of  the  smaller  societies 

1  The  People's  Insurance.  Explained  by  the  Right  Hon.  David  Lloyd 
George,  London,  1911. 


VOLUNTARY  SICKNESS  INSURANCE  233 

where  the  financial  affairs  must  be  intrusted  to  inefficient 
hands,  and  where  the  possibility  of  temptation  to  the  fiscal 
officers  intrusted  with  the  funds  is  very  great.  The  example 
of  such  defalcations  naturally  acts  as  a  deterrent  to  many  a 
careful  workman. 

No  less  dangerous  is  inefficient  management.  Many  of  the 
smaller  societies  have  started  with  very  little  knowledge  of 
the  sick-risk  and  the  inevitable  losses.  Optimism  begotten 
of  ignorance,  often  leads  the  smallest  and  youngest  of  organ- 
izations to  promise  a  good  deal  more  than  is  justified  by  the 
dues  collected.  In  the  case  of  assessment  societies,  the  unex- 
pected and  rapid  increase  of  losses  may  force  the  assessments 
rapidly  upwards  and  discourage  the  members. 

But  a  more  serious,  because  less  evident  and,  therefore,  more 
frequent,  drawback  of  many  voluntary  sick-benefit  societies, 
from  a  technical  insurance  point  of  view,  is  the  lack  of  ad- 
justment of  dues  (or  premiums)  to  age.  Such  adjustment  is 
desirable  from  the  point  of  view  of  individual  justice.  But 
we  are  concerned  here  rather  with  its  social  results.  A  scien- 
tific adjustment  between  age  and  dues  is  out  of  the  question 
for  small  societies,  because  of  lack  of  knowledge  of  actuarial 
theory.  On  the  other  hand,  a  level  premium  or  uniform  dues 
for  members  notwithstanding  the  age,  often  tends  to  make  the 
younger  membership  dissatisfied  to  pay  for  the  support  of  the 
older  members,  and  expresses  itself  either  on  one  hand  in  the 
unwillingness  of  the  younger  members  to  join,  or  in  the  un- 
willingness of  the  society  to  admit  as  new  members  persons  of 
advanced  age. 

Thus,  an  ideal  mutual  benefit  society  would  be  a  society 
having  a  membership  of  more  or  less  uniform  age  group.  But 
even  such  a  society  is  not  guaranteed  against  financial  diffi- 
culties. Starting  as  a  body  of  young  and  healthy  men  with  a 
low  rate  of  sickness,  it  naturally  has  small  expenditures  in  the 
beginning,  and  establishes  low  rates  of  dues.  Automatically, 
however,  as  such  a  society  grows  older,  its  sick-rate  is  bound 
to  increase  and  the  necessary  expenses  and  dues  with  it.  But 
a  constantly  increasing  rate  of  dues  has  often  led  to  financial 
ruin  and  dissolution.  A  scientific  solution  of  such  a  situation 
is  a  scientifically  computed  level  premium,  i.e.,  a  premium 
equal  throughout  the  existence  of  the  insurance,  too  high  in  the 
beginning  and  too  low  in  the  end,  but  equalized  through  the 


234  SOCIAL  INSURANCE 

accumulation  of  reserves  to  meet  the  increasing  obligations  of 
insurance.  In  practice,  however,  the  establishment  of  such 
level  premium  and  reserves  was  found  to  be  very  difficult, 
partly  because  of  optimism  based  upon  ignorance,  and  partly 
because  with  a  wandering  working  class,  membership  in  a 
mutual  aid  society  was  considered  temporary  and  not  a  perma- 
nent arrangement. 

As  a  matter  of  fact,  even  the  youngest  and  largest  friendly 
societies  in  England  were  mostly  insolvent  from  this  point  of 
view,  that  is,  had  not  sufficient  reserves  to  meet  all  future 
obligations  towards  a  membership  of  advancing  age  without  an 
increase  of  dues.  These  friendly  societies  endeavored  to  meet 
the  situation  by  stimulating  a  constant  influx  of  younger 
blood,  and  as  long  as  they  were  successful  in  these  efforts, 
need  not  fear  any  financial  difficulties.  But  such  a  course  is 
not  always  open  to  the  smaller  societies.  On  the  contrary,  as 
soon  as  the  advance  in  the  average  age  of  the  membership  be- 
comes noticeable,  so  as  to  increase  dues,  a  spirit  of  restlessness 
often  spreads  among  the  younger  members,  and  still  more  so 
among  the  prospective  members;  a  new  society  is  organized, 
and,  left  without  new  members,  the  older  society  must  eventu- 
ally break  down,  when  its  older  membership,  just  because  of 
the  advancing  age,  feels  the  greatest  need  of  sick-benefit.  In 
other  words,  the  absence  of  a  true  actuarial  basis  serves  as  a 
great  stumbling  block  to  the  career  of  a  sick-benefit  society, 
and  has  led  to  the  destruction  of  thousands  of  them,  and  has 
kept  away  from  sick-insurance  large  numbers  of  workmen. 

Furthermore,  while  the  difficulties  enumerated,  or  at  least 
some  of  them,  are  of  a  more  or  less  technical  nature,  another 
objection  will  be  more  readily  understood — that  under  a  volun- 
tary system,  the  entire  burden  of  sick-insurance  falls  upon  the 
workmen  themselves.  From  the  brief  analysis  of  causes  of 
disease,  as  we  have  given  it,  it  is  quite  clear  that  such  "  in- 
cidence "  of  the  cost  of  insurance  is  not  socially  just — and 
the  economic  condition  of  the  workmen  is  not  such  as  to  make 
the  carrying  of  this  burden  an  easy  one. 

Even  under  this  voluntary  form  of  sickness  insurance,  the 
necessity  for  outside  assistance  has  been  recognized,  but  the 
form  it  takes  is  rather  pathetic,  and  smacks  of  private  benevo- 
lence. This  expresses  itself  in  different  ways.  Very  commonly 
shop  clubs  or  establishment  funds  receive  voluntary  contribu- 


VOLUNTARY  SICKNESS  INSURANCE          235 

tions  from  the  employer,  the  amount  depending  entirely  upon 
his  good  will.  Another  way  of  obtaining  such  outside  financial 
aid,  is  the  large  number  of  honorary  members  who  pay  dues 
without  claiming  any  benefits.  Thus,  in  France  in  1905,  out 
of  a  total  membership  of  4,085,000  there  were  450,000  such 
honorary  members  contributing  $830,000  against  $7,172,000 
contributed  by  the  ordinary  members.  And  there  were  also 
$922,000  contributed  as  subsidies,  donations,  and  legacies, 
making  a  total  subsidy  of  $1,752,000.  Similar  situations  are 
found  in  all  other  countries,  where  voluntary  sickness  insurance 
has  developed. 

Finally,  in  admiration  of  the  large  figures  of  membership, 
reserves,  and  surpluses,  it  is  often  forgotten  that  the  results 
of  the  mutual  benefit  societies  cannot  be  judged  only  by  these 
numbers,  unless  we  know  that  sufficient  protection  against 
sickness  is  given,  and  that  means  primarily  the  following  three 
things : 

A  daily  or  weekly  sick-benefit  which  is  large  enough  to 
meet  the  reasonable  needs ;  sufficient  financial  strength  in  the 
friendly  society  or  mutual  benefit  society  to  continue  this 
benefit  for  a  sufficiently  long  period  of  time,  and,  finally, 
a  proper  and  efficient  organization  of  the  medical  service,  so 
that  the  sick  workman  should  not  be  left  without  necessary 
medical  aid.  In  fact,  the  efficiency  of  the  friendly  society 
may  be  measured  by  the  extent  to  which  it  succeeds  in  prevent- 
ing the  worthy  self-respecting  sick  from  applying  to  private 
or  public  relief.  And  from  this  point  of  view,  many  of  the 
smaller  organizations  are  found  wanting. 

Once  the  great  usefulness  of  this  form  of  mutual  insur- 
ance is  admitted,  and  at  the  same  time  the  obstacles  to  its 
proper  and  sufficient  development  are  recognized,  the  ques- 
tion of  the  proper  attitude  of  the  state  towards  it  becomes 
a  matter  of  serious  concern. 

Not  so  very  long  ago,  historically  speaking,  the  attitude  of 
the  state  towards  these  societies  was  a  suspicious  or  even 
antagonistic  one,  as  it  was  towards  all  organizations  of  work- 
men. And  in  countries  like  Russia,  they  were  absolutely  pro- 
hibited until  very  recently. 

Passing  over  these  earlier  stages,  the  first  efforts  of  the 
modern  state  were  directed  towards  regulation,  so  as  to 
prevent  some  of  the  evils  which  we  have  indicated.  Many 


236  SOCIAL  INSURANCE 

acts  for  the  regulation  or  control  of  the  mutual  bene- 
fit societies  were  passed  in  Europe  during  the  nine- 
teenth century.  In  England,  for  instance,  as  early  as 
1793  a  special  act  concerning  these  societies  was  adopted, 
and  many  subsequent  acts  passed  during  the  nineteenth  cen- 
tury, while  the  law  which  governed  the  friendly  societies  up 
to  the  National  Insurance  Act  was  passed  in  1876  and 
amended  in  1896.  In  France,  the  first  special  act  concerning 
mutual  benefit  societies  dates  back  to  1850,  but  a  more  com- 
prehensive act,  passed  in  1898,  is  still  in  force  at  present.  In 
Italy  the  act  of  1886  has  controlled  the  mutual  benefit  societies 
without  any  changes  for  over  twenty-five  years;  in  Sweden, 
an  act  of  1891;  in  Belgium  an  act  was  passed  in  1851,  i.e., 
about  the  same  time  as  in  France,  and  a  later  act,  still  in 
force,  in  1894 ;  in  Denmark,  in  1892,  and  so  on. 

Granted  that  society,  through  its  governmental  authority, 
has  a  right  and  a  duty  towards  these  mutual  benefit  societies, 
what  should  be  the  proper  sphere  of  regulation  and  control 
exercised?  Legislation  may  endeavor  to  accomplish  the  fol- 
lowing results  through  its  control: 

1.  To  protect  the  members  against  direct  fraud  in  the 
financial  affairs. 

2.  To  protect  the  members  against  incompetency. 

3.  To  protect  the  society  against  possible  insolvency  by  re- 
quiring compliance  with  actuarial  requirements. 

4.  To  direct  the  activity  of  societies  into  certain  channels 
and,  finally, 

5.  To  stimulate  the  growth  of  these  voluntary  organizations 
by  suitable  means,  such  as  privileges,  or  even  financial  sub- 
sidies. 

In  the  evolution  of  legislation  on  the  subject,  two  tenden- 
cies were  competing  for  ascendency — depending  upon  the  gen- 
eral point  of  view,  one  considering  them  primarily  as  insur- 
ance institutions,  and  the  other  as  organizations  for  mutual 
aid.  From  an  insurance  point  of  view  the  protection  of  the 
future  rights  of  the  members  was  the  paramount  aim.  An 
insurance  company  is  not  solvent  unless  at  any  time  its 
assets  are  sufficient  to  cover  all  the  obligations  assumed  with- 
out dependence  upon  new  members.  And  it  was  often  asserted 
that  requirements  equally  rigid  should  be  put  before  mutual 
benefit  societies.  But  very  few  mutual  benefit  societies  have 


VOLUNTARY  SICKNESS  INSURANCE          237 

succeeded  in  achieving  such  a  degree  of  financial  strength. 
And  yet  collectively  the  social  usefulness  of  the  work  of  these 
societies  was  enormous.  Moreover,  such  a  degree  of  control 
would  require  a  degree  of  state  interference  with  the  volun- 
tary organizations,  which  the  latter  have  always  resented. 
And  it  gradually  dawned  upon  students  of  this  problem  that 
a  strict  control  of  this  nature,  while  protecting  the  interests 
of  some,  would  probably  discourage  rather  than  stimulate 
the  further  development  of  these  societies.  Under  the  influ- 
ence of  these  arguments  the  control  exercised  is  usually  more 
moderate  and  is  limited  to  the  general  integrity  of  administra- 
tion and  to  certain  correspondence  between  income  and  ex- 
penditures, and  the  prevention  of  obligations  which  are 
obviously  impossible.  And  the  further  fear  of  interfering  with 
the  spontaneous  growth  of  the  institutions  has  in  many  coun- 
tries made  even  this  control  an  optional  one.  Any  degree  of 
compulsory  governmental  control,  it  was  argued,  might  inter- 
fere with  the  development  of  the  small  village  or  neighborhood 
sick-benefit  society,  which  naturally  arises  out  of  local  needs 
and  may  be  the  seed  of  a  stronger  institution.  Thus  in  many 
countries  the  distinction  arose  between  controlled  and  uncon- 
trolled societies,  the  terminology  being  different  in  various 
countries. 

Thus,  the  British  act  of  1875  speaks  of  "  registered  "  so- 
cieties; the  French  act  of  1852  of  "  approved  "  societies 
(societes  approuvees)  ;  the  Belgian  act  of  1890  of  "  recog- 
nized mutual  benefit  societies  ";  the  Italian  law  of  1886  of 
"  authorized  "  societies. 

To  use  a  term  of  greater  familiarity  to  the  American  ear, 
we  might  speak  of  incorporated  and  non-incorporated  societies. 
Besides  the  essential  fact  of  greater  financial  security,  other 
privileges  are  usually  offered  to  the  incorporated  societies,  so 
as  to  make  the  act  of  incorporation  a  desirable  one. 

Practically  all  countries  which  have  adopted  special  laws 
concerning  the  mutual  benefit  societies  grant  recognition  or 
registration  only  upon  condition  of  a  certain  amount  of  pub- 
licity. The  constitution  must  be  presented  to  the  authorities 
and  annual  financial  reports  given.  This  alone  is  extremely 
important  as  establishing  financial  soundness  of  the  organiza- 
tions. 

Scarcely  any  law  prescribes  a  definite  constitution  for  all 


238  SOCIAL  INSURANCE 

societies,  but  certain  requirements  concerning  the  rights  of 
members  as  to  admission,  resignation,  reinstatement,  or  trans- 
fer, the  duties  of  the  administrative  officers,  the  proper  guar- 
anties of  representative  government,  the  bonding  of  the  fiscal 
officers,  the  proper  methods  of  dissolution  of  mutual  societies, 
and  similar  features  of  the  activity  of  these  societies  may  be 
required.  Where  the  regulations  are  not  compulsory,  removal 
of  the  name  of  the  society  from  the  list  of  "  recognized  " 
societies  and  withdrawal  of  the  various  privileges  is  the  penalty 
for  non-compliance  with  the  demands  of  the  law. 

Most  of  the  laws  discussed  apply  not  only  to  the  sick- 
benefit  societies  but  organizations  for  other  purposes.  The 
range  of  these  purposes  is  prescribed  in  the  law  of  England, 
Belgium,  France,  Italy,  etc.  Formation  of  societies  for  one 
specific  purpose  is  encouraged,  for  instance  in  the  Belgian  act, 
and  the  combination  of  many  different  objects,  on  the  contrary, 
is  discouraged,  experience  showing  that  singleness  of  purpose 
is  conducive  to  financial  soundness.  When  such  serious  ob- 
ligations as  annuities  or  pensions  are  assumed,  the  English 
act  requires  that  the  statutes  be  certified  by  some  actuary. 
Other  requirements  are  that  the  books  be  kept  open  to  gov- 
ernment inspections.  In  some  countries  (Denmark)  govern- 
ment officials  make  regular  inspections  of  their  books.  In 
others  a  governmental  examination  of  the  financial  status  may 
be  demanded  by  a  minority  of  membership. 

The  benefits  conferred  in  return  for  such  voluntary  submis- 
sion to  regulations  are,  usually,  the  official  stamp  of  approval, 
the  advantage  of  fiscal  control,  and  certain  indirect  political 
and  economic  advantages.  Almost  universally  reductions  or 
entire  omissions  of  certain  court  fees,  stamp  duties,  and  similar 
charges  are  granted,  which  may  be  equivalent  to  financial  sub- 
sidy ;  in  some  countries  even  free  postage  privileges  are  granted 
(e.g.,  Belgium),  or  the  right  to  deposit  sums  of  money  with 
certain  governmental  agencies  guaranteeing  a  higher  rate  of 
earnings  (France),  so  that  regulation  gradually  shades  into 
subsidy.  Yet  as  far  as  the  subsidies  are  indirect  or  insignifi- 
cant, Great  Britain  (before  the  later  act),  Finland,  Nether- 
lands, Italy,  and  Spain  may  be  classified  in  this  group,  which 
is  in  the  stage  of  government  regulation  only. 

As  far  as  available  statistical  data  seem  to  indicate,  even 
simple  incorporation  or  registration  has  had  a  certain  bene- 


VOLUNTARY  SICKNESS  INSURANCE  239 

ficial  effect.  An  increasing  number  of  societies  prefer  to  re- 
ceive official  recognition.  Usually  the  stronger,  the  larger,  the 
older  societies  are  those  more  readily  asking  for  recognition. 
In  any  case,  the  policy  of  absolute  indifference  to  these  ex- 
tremely useful  efforts  of  the  working  class  to  build  up  by  its 
own  efforts  a  system  of  mutual  insurance,  has  been  abandoned 
in  all  but  the  most  backward  of  European  countries. 


CHAPTER  XV 
SUBSIDIZED   SYSTEMS    OF   SICKNESS   INSURANCE 

GOVERNMENT  regulation  is  but  the  first  preliminary  step 
towards  a  system  of  social  insurance.  In  the  domain  of  sick- 
ness insurance  it  has  been  tried  out,  perhaps,  more  thoroughly 
than  in  any  other  branch.  But  many  years  of  experience  with 
various  systems  of  regulation  have  very  clearly  established 
that  the  great  hopes  placed  upon  them  were  very  much 
exaggerated.  Though  regulation  has  undoubtedly  improved 
the  financial  condition  of  a  certain  number  of  societies,  it  did 
not  prove  a  sufficient  stimulus  to  extend  the  benefits  of  mutual 
aid  to  all  or  a  majority  of  the  wage-workers.  A  more  effective 
method  in  accomplishing  this  aim  was  sought  in  direct  gov- 
ernment subsidies. 

This  system  is  found  primarily  in  five  countries:  Sweden 
(1891),  Denmark  (1892),  Belgium  (1904),  France  (1910),  and 
Switzerland  (1912).  The  system  of  subsidy  in  all  these  coun- 
tries is  closely  interwoven  with  the  system  of  regulation. 
In  all  of  them  there  is  a  clear-cut  division  between  recognized 
and  non-recognized  societies,  and  subsidies  are  granted  only 
to  the  former.  The  principle  has  a  rather  common  applica- 
tion. Nevertheless,  it  is  somewhat  curious  that  with  the  ex- 
ception of  France,  where  the  system  of  subsidy  is  rather 
limited,  all  the  countries  mentioned  are  the  minor  countries 
of  Europe. 

Of  the  five  countries  enumerated  the  system  of  state  sub- 
sidies, at  least  in  two,  is  rather  ephemeral,  namely,  in  France 
and  in  Belgium.  On  the  other  hand,  in  Denmark  and  Sweden, 
since  1892  the  subsidies  were  part  of  a  comprehensive  system, 
and  the  Swiss  act,  passed  in  February,  1912,  by  a  national 
referendum,  also  endeavors  to  establish  such  system. 

The  American  reader  who  has  been  accustomed  to  the 
granting  of  public  moneys  to  private  charitable  institutions, 
such  as  asylums  and  hospitals,  may  perhaps  misunderstand 
the  nature  of  these  subsidies,  for  they  are  neither  given  nor 

S4Q 


SUBSIDIZED  SICKNESS  INSURANCE  241 

received  in  the  spirit  of  charity.  Charity  presupposes  desti- 
tution and  pauperism,  while  these  government  subsidies  are 
intended  to  prevent  either.  Their  purpose  is  to  popularize 
and  facilitate  insurance — a  dignified  method  of  self -protection. 
In  no  case,  as  we  shall  see,  do  these  subsidies  reach  a  level 
high  enough  to  furnish  sick-relief  and  medical  care  in  them- 
selves. Their  aim  is  twofold:  On  one  hand  to  meet  part  of 
the  cost  of  a  service  which  a  large  part  of  the  wage-working 
class  is  unable  to  purchase  for  itself  unaided,  and  on  the 
other  hand,  it  is  to  serve  as  a  stimulus  to  the  working  class  to 
organize  and  foster  such  institutions  of  self-help.  In  several 
cases  the  subsidy  is  so  small  that  only  the  educational  effect, 
and  not  the  financial  aid,  is  of  importance. 

The  first  state  subsidy  system  to  sickness  was  adopted  in 
Sweden  by  two  acts  passed  in  1891  on  the  same  day,  one  for 
regulation  of  recognized  sick-benefit  societies,  and  the  other 
granting  direct  subsidies  to  such  societies  on  their  applica- 
tion. 

By  the  original  act  the  amounts  of  subsidies  were  fixed  on  the 
following  scale  according  to  the  membership  of  the  societies : 

For  each  member  up  to  50 1      Crown  (26.8tf) 

"       "          "        over  50  up  to  250 V2  Crown  (13  At) 

"       «          «  "250    %  Crown  (  6.70). 

Moreover,  the  maximum  subsidy  was  placed  at  300  crowns 
($80.40).  According  to  this  rule,  a  society  would  not  profit 
by  any  membership  above  850,  while  the  subsidy  was  greatest 
for  the  very  smallest  societies.  The  amount  even  in  these  cases 
was  so  small  that  the  practial  value  of  the  subsidy  could  not 
be  very  great.  The  purpose  evidently  was  to  help  start  the 
organization  and  then  trust  to  its  own  strength.  The  amounts 
of  subsidies  were  materially  increased  in  1898 — from  50$  to 
100$,  as  the  following  schedule  shows: 

For  each  member  up  to  100 1.50  Crowns  (40.2tf) 

For  each  additional  member  up  to    300 1.00       "         (26.8^) 

"      "  "  "         "    "2600 50       "         (13.4tf) 

"      "  "  "       above  2600 25       "        (  6.7tf) 

provided  the  society 's  own  revenue  at  least  equals  that  amount. 
This  subsidy  may  not  appear  staggering  in  the  light  of  Amer- 


242  SOCIAL  INSURANCE 

lean  wage  levels.  It  is  not  expected  to  meet  the  cost  of  sick- 
insurance,  but  to  stimulate  voluntary  membership  and  con- 
tributions, yet  in  its  direct  financial  effect,  the  subsidy  of  400 
or  500  crowns  to  a  society  of  500  members  is  a  material  factor 
not  to  be  despised. 

The  Danish  act,  passed  in  1892,  is  decidedly  more  liberal. 
It  gives  a  flat  subsidy  of  one-fifth  of  the  revenue  of  the  so- 
ciety from  dues,  but  not  to  exceed  two  crowns  (53.6  cents), 
independently  of  the  number  of  membership.  This  subsidy 
is  granted  to  recognized  societies  only.  In  the  case  of  a  society 
of  2,500  members,  for  instance,  the  subsidy  in  Sweden  would 
amount  to  $388.60,  and  in  Denmark  to  $1,340.  As  compared 
with  these,  however,  the  subsidy  established  by  the  new  Swiss 
law  is  really  large. 

The  Swiss  schedules  of  subsidies  is  interesting  because  it  is 
adjusted  to  the  extent  of  the  society's  activity — 3.50  francs 
(67.5  cents)  for  children  under  14,  and  3.50  francs  (67.5 
cents)  for  each  male  adult,  and  4  francs  (77.2  cents)  for  each 
female  adult,  if  only  one  of  the  two  main  functions — sick- 
benefits  or  medical  aid — is  provided  for;  5  francs  (96.5  cents) 
if  both  features  are  furnished,  and  an  additional  50  centimes 
(making  $1.06  in  all),  if  sick-benefits  are  furnished  for  310 
consecutive  days.  In  mountainous  districts  where  medical 
help  is  dear  and  difficult  to  get,  the  subsidy  may  be  increased 
to  7  francs  ($1.35).  There  is  an  additional  subsidy  of  from 
20  to  40  francs  in  case  of  confinement.  Not  only  is  the  rate 
of  subsidy  very  much  higher  (for  2,500  members  at  the  rate 
of  5  francs,  e.g.,  the  subsidy  would  amount  to  $2,412),  but 
the  very  principle  underlying  it  is  important.  The  law  not 
only  aims  to  stimulate  the  formation  of  sick-benefit  societies, 
but  to  improve  the  nature  of  their  service. 

As  compared  with  these  liberal  subsidies,  those  furnished  in 
Belgium  and  France  are  rather  insignificant.  They  are  inter- 
esting mainly  as  an  indication  of  the  extension  of  the  prin- 
ciple rather  than  important  factors  in  the  development  of 
sickness  insurance.  In  Belgium  the  only  provision  of  the  law 
entitling  that  country  to  a  place  in  this  study  is  that  of  1904, 
by  which  an  amount  of  115,000  francs  (some  $23,000)  is 
appropriated  annually  for  distribution  among  special  funds, 
which  aim  to  provide  sick-benefits  for  the  period  subsequent 
to  the  first  six  months.  These  are  known  as  "  caisses  de  re- 


SUBSIDIZED  SICKNESS  INSURANCE  243 

assurance  " — they  are  really  reinsurance  funds  maintained 
by  confederation  of  local  funds  for  this  purpose,  and  the  state 
subsidy  limited  to  them  aims  to  improve  rather  than  extend 
sick-insurance  though  the  numerical  strength  of  the  mutual 
aid  societies'  membership  in  Belgium  is  far  from  imposing. 

In  France,  various  minor  methods  of  assisting  mutual  aid 
societies  exist,  but  they  can  scarcely  be  dignified  by  the  name 
of  a  national  subsidized  system  of  sick-insurance. 

A  direct  subsidy  to  the  latter  was  first  introduced  only 
by  the  act  of  1910,  establishing  a  national  compulsory  old-age 
insurance  system.  It  was  argued  that  this  additional  burden 
upon  the  pockets  of  the  workmen  might  harm  the  voluntary 
sick-benefit  societies,  and  direct  subsidy  to  the  latter  was 
embodied  in  the  old-age  insurance  act.  It  is  very  small, 
amounting  to  1.50  francs  (29  cents)  for  each  adult,  and  one- 
half  this  amount  for  each  insured  person  under  18.  The 
subsidy  is  granted  not  only  to  the  mutual  benefit  societies,  but 
also  to  the  trade  unions  granting  sick-aid.  Even  this  measure 
— destined  to  protect  the  existing  sick-insurance  institutions 
rather  than  stimulate  its  development,  and  forced  into  the  law 
so  as  to  mollify  somewhat  the  mutual  benefit  societies,  which 
were  inclined  to  be  antagonistic  to  the  old-age  insurance  plan 
— means  an  expenditure  of  from  seven  to  ten  million  francs 
annually. 

The  importance  of  these  governmental  subsidies  lies  not  only 
in  the  financial  assistance  rendered,  and  in  the  stimulus  given 
to  the  increase  of  membership  and  formation  of  new  societies, 
but  also  in  the  greater  degree  of  supervision  and  control  of 
the  activity  of  these  societies  which  becomes  possible,  and  which 
is  accepted  with  greater  readiness  by  the  societies  themselves 
in  view  of  the  assistance  rendered.  This  high  degree  of 
effective  control  is  very  noticeable  in  all  the  three  countries 
having  a  comprehensive  system  of  subsidized  sick-insurance, 
namely,  Denmark,  Sweden,  and  Switzerland. 

The  laws  regulate  membership.  Every  workman  in  fair 
health  must  have  the  opportunity  of  joining  a  sick-benefit 
society.  Of  course,  the  qualification  of  fair  health  in  itself 
is  a  serious  limitation.  But  obviously,  it  is  impossible  to  force 
chronic  invalids  upon  self-sustaining  sick-benefit  societies 
without  endangering  their  solvency  beyond  any  compensation 
which  the  state  subsidy  offers.  There  may  be  societies  which 


244  SOCIAL  INSUEANCE 

are  based  upon  religious  or  political  qualifications.  An  op- 
tional law,  to  be  successful,  cannot  disregard  these.  The  Swiss 
law,  e.g.,  frankly  recognizes  them,  but  only  in  case  there  are 
-other  societies  which  the  applicant  may  join.  Otherwise  they 
must  open  the  doors  to  any  one. 

Then  there  is  the  possibility  of  a  speculative  membership  in 
several  societies  which  would  give  a  benefit  in  excess  of  earn- 
ing. That  is  prohibited.  The  question  of  transfer  from  one 
society  because  of  dissolution  of  some  societies  or  removal  of 
the  wage-workers  from  one  locality  to  another  is  an  important 
one,  especially  with  advancing  age,  when  the  member  becomes 
less  and  less  desirable.  And  that  right  is  guaranteed  in  all 
laws. 

The  Swiss  law,  the  latest  and  best  of  the  voluntary  sub- 
sidized sick-insurance  systems,  goes  further  than  any  on  the 
regulation  of  societies  applying  for  subsidies,  especially 
as  far  as  benefits  are  concerned.  The  subsidy  fluctuates 
according  to  the  subsidy  granted,  so  as  to  encourage  satis- 
factory benefit  scales.  It  is  stipulated  that  the  sick-benefit 
shall  not  be  less  than  one  franc  per  diem.  The  probationary 
time  which  must  expire  after  entrance  before  the  new  member 
qualifies  for  benefits,  must  not  be  less  than  three  months.  The 
waiting  time  after  falling  sick  must  not  be  more  than  three 
days.  The  benefits  must  be  given  for  at  least  180  days  in  any 
period  of  360  days.  Confinement  benefits  must  be  granted  for 
at  least  six  weeks.  The  societies  must  be  financially  sound. 
And,  furthermore,  the  Swiss  law  prescribes  a  definite  system 
of  organization  of  medical  and  pharmaceutical  help,  so  as  to 
prevent  excessive  cost  of  services,  and  yet  leave  to  the  sick 
member  a  certain  selection  of  physician. 

The  subsidy  system  was  productive  of  material  results  as 
demonstrated  by  increase  of  membership.  In  Denmark  457 
societies  were  recognized  in  the  first  year  of  the  operation  of 
the  law,  and  now  their  number  exceeds  1,500.  The  member- 
ship of  recognized  societies  increased  from  less  than  120,000 
to  300,000  in  1900,  550,000  in  1907,  and  by  this  time  may 
reach  three-quarters  of  a  million.  Not  only  has  the  member- 
ship increased,  but  their  work  became  more  uniform  and  more 
efficient,  because  the  governmental  control  exercised  was  not 
at  all  perfunctory.  It  was  a  system  of  efficient  expert  guidance 
and  supervision  realized  through  a  policy  of  education. 


SUBSIDIZED  SICKNESS  INSURANCE  245 

Similar  results  obtained  in  Sweden,  where  the  number  of 
registered  societies  increased  from  221  in  1892,  to  2,318  in 
1907,  and  their  membership  from  less  than  25,000  to  550,000. 
Curiously  enough,  the  effect  of  the  original  law  of  1891  was 
slight,  and  it  required  the  increase  of  the  scale  of  subsidies 
in  1898  to  accomplish  these  results. 

And  the  cost  of  these  subsidies  has  not  been  staggering. 
In  Sweden  it  amounted,  in  1907,  to  some  $116,000  in  a  total 
budget  of  these  societies  of  $1,750,000,  or  less  than  1%.  In 
Denmark,  where  the  subsidies  are  greater,  the  cost  to  the 
state  was  about  half  a  million  dollars  in  a  budget  of  about  a 
million  and  a  half,  or  about  one-third. 

These,  in  brief,  are  the  main  facts  in  regard  to  the  develop- 
ment of  this  stage  of  social  insurance.  Not  only  from  the 
financial  point  of  view,  but  in  principle,  it  represents  an  ad- 
vance over  the  period  of  platonic  regulation.  The  important 
principle  is  admitted  that  the  problem  of  sickness  relief  and 
of  sickness  is  a  national  and  not  an  individual  problem,  and 
also  that  the  working  population  is  unable  to  cope  with  this 
problem  singly.  All  arguments  against  such  paternalistic 
legislation  are  cast  aside,  as  they  are  cast  aside  in  the  appro- 
priation for  free  public  hospitals  and  dispensaries. 

In  view  of  these  results  accomplished,  why  shall  not  a 
system  of  government  subsidy  to  voluntary  insurance  be  con- 
sidered an  effective  solution  of  the  problem  of  sick-relief? 

Around  this  central  problem  a  vast  amount  of  literature 
has  accumulated  in  Europe.  Surely,  the  "  onus  probandi  " 
lies  upon  the  compulsory  system.  It  goes  without  saying  that 
compulsion  always  needs  to  be  justified,  and  its  justification 
may  only  be  found  in  the  shortcomings  of  the  voluntary 
system. 

The  following  criticisms,  then,  have  at  various  times  been 
made  and  can  be  fairly  substantiated  by  the  statistical  data 
available. 

The  voluntary  system,  even  in  connection  with  subsidy,  ac- 
complishes the  desired  result  slowly  if  at  all.  This  result 
is  to  provide  sick-insurance  for  all  who  need  it.  At  best  the 
increase  of  membership  is  gradual  and  rather  slow,  while  com- 
pulsion may  at  one  stroke  extend  the  benefits  to  the  precise 
limits  designated. 

Secondly,  even  after  many  years  of  growth,  a  subsidy  sys- 


246  SOCIAL  INSURANCE 

tern  still  fails  to  achieve  these  results.  Twenty  years  of 
experience  in  Denmark  have  given  that  country  some  five 
or  six  hundred  thousand  insured,  and  about  the  same  number 
in  Sweden.  Perhaps  equally  good  results  might  not  be  pos- 
sible in  a  country  with  a  lesser  developed  sense  of  mutual 
co-operation  and  personal  thrift.  But,  after  all,  this  number, 
about  equally  divided  among  men  and  women,  does  not  cover 
more  than  some  20$  of  the  population  of  Denmark,  and  only 
about  10$  of  the  population  of  Sweden.  Even  in  Denmark 
it  is  stated  that  only  about  three-fifths  of  the  work- 
men were  found  to  hold  membership  in  sickness-insurance 
societies,  and  in  Sweden  the  proportion  cannot  be  much  more 
than  about  half  of  that,  or  three-tenths. 

Thirdly,  the  nature  of  the  aid  rendered  is  still  far  from 
being  uniformly  good,  and  often  is  altogether  unsatisfactory. 
Thus  it  was  found  that  in  Denmark  nearly  60$  of  all  societies 
discontinued  their  sick-benefits  at  the  expiration  of  13  weeks, 
and  only  17$  extended  it  beyond  26  weeks.  In  Sweden  the 
situation  was  even  more  unsatisfactory.  Of  2,316  societies, 
only  33,  or  1.4$,  extended  it  beyond  26  weeks,  588,  or  25$, 
from  13  to  26  weeks;  591,  or  25$,  just  13  weeks,  and  nearly 
one-half  of  the  societies  had  a  limit  of  less  than  13  weeks,  over 
200  societies,  8  weeks  or  less.  Equally  variable  and  often 
unsatisfactory  are  the  amounts  of  benefits  granted.  In 
Denmark,  for  instance,  over  one-half  the  societies  granted  even 
to  men  a  daily  benefit  of  only  .40  to  .50  Krone  (or  11  to 
13  cents),  and  only  one-eighth  gave  one  Krone  (26.8),  or  a 
little  over  that. 

It  is  quite  obvious  why  the  scales  of  benefits  have  been 
gaged  so  very  low.  The  finances  of  the  sick-benefit  societies 
do  not  permit  any  greater  benefits,  and  higher  dues  cannot  be 
paid  by  the  wage-working  membership.  That,  however,  is 
one  of  the  crucial  problems  of  the  whole  field  of  social  in- 
surance. Except  for  the  state  subsidy,  the  whole  burden  of 
payment  falls  upon  the  insured  themselves.  That  is  the  great- 
est obstacle  to  the  development  of  voluntary  insurance,  and, 
moreover,  this  incidence  of  the  cost  is  socially  unjust  if  the 
principles  of  the  industrial  causation  of  most  illness  be  recog- 
nized. Industry  must  in  all  justice  bear  a  portion  of  the  cost 
of  sick-insurance,  if  not  the  entire  cost  as  in  the  case  of 
accident  insurance. 


SUBSIDIZED  SICKNESS  INSUEANCE  247 

This  criticism  of  the  results  of  subsidized  systems  naturally 
applies  with  greater  force  to  all  voluntary  systems  without 
subsidy.  It  may  be  summarized  thus : 

The  voluntary  system  is  slow  in  extending. 

It  never  extends  far  enough. 

It  is  not  satisfactory  as  to  services  furnished. 

It  places  too  big  a  share  of  the  burden  upon  the  wage- 
working  class. 

These  shortcomings,  or  at  least  some  of  them,  the  compulsory 
system  aims  to  correct. 


CHAPTER  XVI 
COMPULSORY  SICK-INSURANCE 

THE  education  of  the  American  public  in  matters  of  social 
insurance  has  gone  so  far  that  it  has  learned  of  the  existence 
of  compulsory  sickness  insurance  in  Germany.  But  the  fal- 
lacious opinion  still  commonly  prevails  that  it  is  an  institu- 
tion peculiar  to  the  German  Empire,  to  be  explained  by  such 
considerations  as  the  iron  will  of  Bismarck,  the  respect  of  the 
German  for  governmental  authority,  the  strength  of  the  Ger- 
man Polizei-Staat,  and  so  forth.  Even  the  success  of  the 
British  National  Insurance  Act  in  1911,  has  failed  to  open 
the  eyes  of  the  vast  majority  of  the  American  people  to  the 
fact  that  compulsory  insurance  against  sickness  is  even  more 
widespread  than  compulsory  insurance  against  accidents.  It 
exists  in  Germany,  Austria,  Hungary,  Luxemburg,  Norway, 
Great  Britain,  Russia,  Roumania,  and  Servia — nine  countries 
in  all — and  for  certain  groups  of  labor  in  many  other 
countries ;  such  as,  for  instance,  in  France  for  miners,  seamen, 
and  railroad  employees;  in  Italy  for  railroad  employees,  and 
in  other  countries  for  these  special  groups.  These  facts 
alone  would  give  this  compulsory  method  the  predominant 
position  among  all  other  methods  of  organized  provision 
against  sickness.  This  method  of  social  insurance,  therefore, 
deserves  the  most  serious  consideration. 

Voluntary  insurance,  as  applied  to  the  problem  of  sickness, 
has  reached  its  highest  development  in  the  governmental  sub- 
sidized systems.  It  was  shown  how  far  the  modern  progressive 
state  was  forced  to  go  to  stimulate  and  encourage  this  volun- 
tary insurance  so  as  to  be  able  to  accomplish  all  that  it  has 
accomplished  in  the  Scandinavian  countries. 

But  the  voluntary  principle  was  found  wanting,  primarily 
for  two  reasons ;  first,  because  it  failed  to  make  insurance  uni- 
versal, and  left  without  protection  those  most  in  need  of  it; 
second,  because  it  failed  to  lift  the  burden  of  the  working 
class  as  such,  as  long  as  the  state  remained  aloof,  satisfying 

248 


COMPULSORY  SICK-INSURANCE  249 

itself  with  the  policeman's  function  of  control  and  regulation. 
The  rapid  growth  of  this  voluntary  form  of  sick-insurance, 
under  the  influence  of  direct  state  subsidies,  proved  not  only 
the  great  need  of  this  form  of  social  protection,  but  also  the 
inability  of  the  workingman  to  provide  it  by  his  own  means. 

Germany  had  seen  the  limitations  of  the  voluntary  system 
earlier  than  other  nations.  It  was  first  to  make  a  radical 
break  with  the  past  and  adapt  the  principle  of  state  compul- 
tion  to  this  problem  in  1883.  While  Austria  soon  followed 
suit  in  1888  and  Hungary  in  1891,  this  principle  met  with 
obstinate  resistance  outside  of  the  Germanic  world,  or  at  least 
the  part  of  the  civilized  world  not  under  direct  Germanic  in- 
fluence. But  the  inevitable  logic  of  economic  conditions  forced 
the  compulsory  principle  to  the  foreground.  The  compulsory 
sickness-insurance  acts  passed  in  Norway  in  1909,  in  Servia  in 
1910,  in  Great  Britain  in  1911,  and  in  Russia  and  Roumania 
in  1912  are  conclusive  proofs  that  after  twenty-five  years  of 
experience  history  has  finally  rendered  its  decision  in  favor  of 
the  compulsory  principle.  If  further  evidence  were  necessary, 
it  may  be  found  in  the  fact  that  in  Italy,  Netherlands,  Bel- 
gium, and  Sweden  plans  for  compulsory  sickness  insurance 
are  earnestly  discussed,  and,  in  some  of  these,  the  plans  are 
very  near  their  final  realization. 

There  is  no  doubt  that  in  sickness  insurance  the  influence 
of  the  German  was  very  great.  The  Austrian  and  Hungarian 
systems  were  directly  inspired  by  it;  Luxemburg  followed 
the  German  pattern  closely.  "While  the  later  acts  of  Norway 
and  Great  Britain  possess  many  distinctive  features,  yet  many 
points  of  similarity  to  the  German  system  may  be  found, 
and  especially  in  the  case  of  the  British  Sick  Insurance  law 
was  it  frankly  recognized  that  the  German  system  was  the 
starting  point  from  which  the  British  system  developed.  The 
same  is  true  of  the  Russian  system,  which  was  enacted  in  1912, 
after  nearly  ten  years  of  consideration,  with  the  German  sys- 
tem as  an  object  lesson.  It  will  be  necessary,  therefore,  to 
emphasize  the  German  system  prominently  in  the  following 
pages,  and  treat  of  the  other  systems  mainly  in  so  far  as  they 
deviate  from  the  German  standards. 

The  German  system  of  social  insurance  is  often  referred  to 
as  a  system  of  state  insurance.  This  is  true  in  a  measure. 
But  technically,  this  is  correct  only  as  regards  old-age  and 


250  SOCIAL  INSURANCE 

invalidity  insurance.  In  all  the  three  important  branches 
of  insurance,  the  element  of  state  compulsion  and  state  regu- 
lation and  control  is  present,  but  except  for  old-age  insurance, 
the  state  does  not  directly  assume  the  business  of  insurance. 
As  accidents  are  dealt  with  by  special  insurance  institutions, 
the  so-called  "  mutual  associations  of  employers,"  similarly 
in  sickness  insurance,  mutual  associations  of  workmen  are  the 
vehicles  of  insurance.  Only  when  no  such  associations  exist  do 
the  general  governmental  authorities  undertake  this  function. 
In  other  words,  the  German  state  did  not  destroy  anything  in 
carrying  its  national  plan  of  insurance  through.  It  left  the 
existing  mutual  institutions,  recognizing  their  tremendous  edu- 
cational as  well  as  administrative  value,  and  compelled  the 
organization  of  many  similar  new  ones.  Furthermore,  it  did 
not  prescribe  uniform  conditions  as  it  did  in  dealing  with 
the  problem  of  accidents,  for  it  was  dealing  here  with  an 
institution  for  mutual  aid  rather  than  with  the  obligations  of 
one  class  towards  another. 

The  existence  of  voluntary  mutual  sick-benefit  societies, 
organized  in  many  different  ways,  and  many  of  them  enjoying 
the  confidence  of  the  membership,  was  the  one  patent  fact 
that  the  organization  of  a  national  compulsory  system  had  to 
meet.  And  it  was  good  politics  in  the  best  sense  of  the  word, 
not  to  create  unnecessarily  a  strong  opposition  to  the  national 
scheme  among  the  very  class  whose  interests  it  was  to  serve, 
by  appearing  to  wish  to  destroy  the  existing  institutions.  All 
types  of  existing  sick-benefit  organizations  were,  therefore, 
preserved,  and  where  none  existed,  new  ones  were  to  be 
organized.  .  As  a  result  the  following  types  of  societies  were 
recognized  by  the  German  Sick-Insurance  Law : 

1.  Local  sick-funds  (Ortskrankenkassen). 

2.  Establishment  funds   (Betriebskrankenkassen). 

3.  Building  trades  funds  (Baukrankenkassen). 

4.  Miners'  funds  (Knappschaftskassen). 

5.  Guild  funds  (Innungskrankenkassen). 

6.  Mutual  aid  funds  (Hilfskassen). 

7.  Communal     sick-insurance     (Gemeinde-Krankenversich- 
erung). 

Rather  a  formidable  array  of  technical  terms,  which  makes 
the  list  look  very  much  more  complicated  than  it  really  is 
when  its  historical  causes  are  understood. 


COMPULSORY  SICK-INSURANCE  251 

1.  The  Local  Sick-funds,  the  most  important  of  all,  are 
organizations  combining  workmen  along  the  most  natural  lines 
— workmen  of  one  locality  and  also  of  one  occupation,  or  of 
one  industry  or  of  correlated  occupations  and  industries,  de- 
pending upon  the  exigencies  of  a  local  situation.    The  desire  to 
build  up  an  organization  on  occupational  lines  is  emphasized 
because  of  the  advantages  of  a  certain  uniformity  of  the  sick- 
rate.    Nevertheless,  there  was  a  notable  tendency  to  consolidate 
occupational   "  local  funds  "  into  one  large   fund   for  the 
locality,  thus  sacrificing  the  advantages  of  occupational  di- 
vision to  the  advantages  of  higher  efficiency  which  can  be 
obtained   from   a  very   large   organization.     The   minimum 
membership  for  a  local  fund  is  100. 

2.  The  Establishment  Funds  are  what  their  name  conveys, 
organizations  uniting  employees  of  one  establishment  into  a 
mutual  sick-benefit  organization.    The  organization  is  a  logical 
and  normal  one,  provided  the  establishment  is  large  enough. 
The  German  law  permits  establishment  funds  with  as  few  as 
fifty  members.    This  was  a  type  of  organization  quite  common 
before  the  compulsory  system  was  introduced.    New  ones  have 
been  organized  in  many  instances,  and  sometimes  such  an  or- 
ganization may  be  made  compulsory,  when  a  certain  establish- 
ment for  any  reason  shows  a  heavy  sick-rate  and,  therefore, 
would  prove  a  heavy  burden  to  a  general  organization. 

3.  A  modification  of  the  principle  of  establishment  funds 
is  found  in  the  Building  Trades  Funds.    In  the  building  and 
construction  industry  large  bodies  of  men  are  usually  brought 
together  for  a  short  time  only,  and  they  also  often  show  a  heavy 
sickness  rate,  and  for  these  two  reasons  it  is  advantageous  to 
unite  them  into  a  separate  temporary  sick-insurance  fund. 
These   organizations  may  be  brought  into  existence  volun- 
tarily, or  they  may  be  forced  upon  the  building  contractor. 

4.  Miners'  Funds  represent  the  oldest  form  of  sick  aid 
organization  in  Germany.    They  have  a  peculiar  character  of 
their  own,  primarily  in  that,  for  historical  reasons,  these  funds 
are  not  limited  to  sick-insurance  only,  but  combine  it  with 
invalidity,  old-age  insurance,  and  pensions  to  survivors.    They 
are  often  establishment  funds,  being  limited  to  one  large  mine ; 
at  other  times  several  mines  may  be  united  for  this  purpose, 
creating  a  type  which  may  be  designated  as  an  "  industry 
fund/' 


252  SOCIAL  INSURANCE 

5.  The  Guild  Sick  Funds  are  another  survival  of  precom- 
pulsory  days.     As  the  guild  organization  has  survived  in  a 
few  industries  in  Germany,  these  old  sick-benefit  funds  were 
not  disturbed,  though  they  have  been  put  under  strict  super- 
vision and  made  part  of  the  compulsory  system.     Originally 
provided  only  for  journeymen  and  apprentices,  they  are  made 
to  include  all  employees  of  the  guild  members. 

6.  The    so-called    Aid    Funds     (Hilfskassen)     are    rather 
similar  to  the  British  friendly  societies.    They  were  often  or- 
ganized on  lines  different  from  any  of  the  prescribed  forms 
and  perhaps  not  limited  to  wage-workers  only.     They  often 
had  an  individuality  of  their  own,  and  membership  in  them 
was  treasured.    They  enjoyed  a  high  degree  of  self-government. 
Membership  in  these  "  benefit  funds  "  was  accepted  in  lieu 
of  that  in  any  other  form  of  sick-benefit  societies,  though  at 
a  penalty  of  forfeiting  certain  financial  advantages,  prima- 
rily the  employers'  contribution. 

7.  Communal    Sick-Insurance. — Evidently    the    effort    was 
a    double    one, — on    one    hand    to    preserve    existing    insti- 
tutions   for    those    who    valued    them,    and    organize    the 
remaining  workmen   for  purposes  of  sick-benefits  as   much 
as    possible    on   trade    or    industrial    lines.     It    was    impos- 
sible, or  at  least  extremely  difficult,   to   provide  for  all  of 
the  workmen  in  this  way ;  some  might  naturally,  for  various 
reasons,  remain  outside  of  the  organization.    For  the  benefit 
of  these,  the  commune  itself  as  such  must  take  upon  itself 
the  duties  of  an  insurance  organization.    This,  strictly  speak- 
ing, was  the  only  approach  to  actual  state  insurance  in  the 
German  sick-insurance  system,  so  that  no  one  required  by 
the  law  to  be  insured  should  be  deprived  of  an  insurance 
medium. 

While,  for  purposes  of  accuracy,  all  the  different  forms  of 
organization  were  mentioned,  they  are  not  all  of  equal  im- 
portance in  the  whole  scheme.  The  guild  funds  have  always 
been  of  slight  importance,  their  membership  not  exceeding 
a  per  cent,  or  two.  The  building  funds  are  quite  insignifi- 
cant. The  number  insured  in  the  "  private  aid  funds  "  has 
not  increased  in  view  of  the  sacrifice  required,  and  pro- 
portionately their  rate  has  decreased  from  20$  to  only  8#. 
The  important  forms  of  insurance  organizations,  therefore, 
were  the  (1)  local  funds  organized  on  occupational  or  in- 


COMPULSORY  SICK-INSURANCE  253 

dustrial  lines;  (2)  establishment  funds,  and,  (3)  the  com- 
munal insurance;  and  the  characteristic  feature  of  thirty 
years  of  development  was  the  growth  of  the  local  sick-fund  as 
the  most  predominating  type 

This  simply  means  the  victory  of  the  process  of  consolida- 
tion in  the  domain  of  sick-insurance,  the  yielding  of  the 
factional  pride  before  the  palpable  advantages  of  large  insti- 
tutions. It  is  rather  significant  that  the  only  direct  govern- 
mental institution — the  communal  insurance — was  abolished 
by  the  new  Insurance  Code  of  1911,  and  in  its  place  a  new 
type  introduced  under  the  name  Landkrankenkasse — Rural 
Sick-Fund — for  the  benefit  not  only  of  the  agricultural  work- 
ers, but  various  miscellaneous  wage-earning  groups  in  the 
cities,  so  that  at  present  local  funds  and  establishment  funds 
may  be  said  to  constitute  the  two  types  of  sick-insurance  in 
Germany. 

Very  similar  is  the  organization  in  Austria,  where  prac- 
tically all  the  types  enumerated  may  be  found ;  the  establish- 
ment funds,  the  building  trades  funds,  the  guild  funds,  miners' 
funds,  and  voluntary  mutual  aid  societies.  The  new  institu- 
tions created  by  the  compulsory  system  are  the  local  or  ' '  dis- 
trict sick-funds  "  (Bezirkskrankenkassen)  similar  to  the  Ger- 
man "  Ortskrankenkassen  " — in  which  membership  is  com- 
pulsory in  absence  of  membership  in  any  other  society.  In 
Austria,  as  well,  these  funds  on  geographical  limits  are  becom- 
ing the  predominating  type. 

In  Norway,  too,  while  the  law  of  1909  demands  the  organiza- 
tion of  public  local  sick-benefit  societies  in  every  community, 
membership  in  other  recognized  societies,  satisfying  certain 
requirements  as  to  membership,  dues,  and  benefits,  may  be 
substituted. 

In  the  two  new  and  recent  compulsory  sickness  acts  of 
Roumania  and  Servia  workingmen's  organizations  are  pro- 
vided for  and  in  addition  a  national  union  of  such  organiza- 
tions in  each  country. 

This  system,  which  has  stood  the  test  of  experience  in  Europe 
for  some  decades,  is  adhered  to  also  in  the  British  compulsory 
sick-insurance  law  which  recently  went  into  effect — but  with 
several  serious  modifications. 

On  one  hand,  the  British  plan  was  greatly  influenced  by 
the  popularity  of  the  large  friendly  societies.  In  the  majority 


254  SOCIAL  INSURANCE 

of  European  systems  they  are  tolerated,  while  in  England  they 
are  made  the  main  vehicles  of  the  newly  organized  sickness 
insurance.  That  was  practically  inevitable,  for  no  law  could 
hope  of  success  which  aimed  to  destroy  or  disregard  these 
time-honored  institutions  with  their  millions  of  membership. 
They  have  a  large  advantage  in  their  stability,  the  financial 
strength,  and  actuarial  soundness  of  many  of  them.  But 
there  is  also  another  side  to  this.  The  friendly  societies, 
especially  the  stronger  of  them,  in  order  to  secure  themselves 
financial  success,  or  at  least  financial  stability,  were  forced 
to  adopt  certain  methods  of  commercial  insurance — primarily 
the  principle  of  selection  of  risks.  For  private  insurance  such 
selection  is  imperative,  but  in  a  system  of  national  insurance  it 
may  leave  a  very  large  surplus  of  uninsurable.  The  British 
act  specifically  leaves  to  so-called  ' '  approved  societies  ' '  which 
are  to  administer  the  new  insurance  system,  the  right  of 
rejection  undisturbed.  That  is  a  situation  which  does  not 
exist  in  any  other  compulsory  system,  and  is  also  absent  in 
several  of  the  subsidized  voluntary  systems,  yet  it  is  very 
doubtful  whether  the  British  friendly  societies  would  have 
agreed  to  any  limitation  of  that  right. 

Moreover,  the  organization  of  new  local  sick-insurance  funds, 
which  is  the  basis  of  the  Continental  compulsory  systems,  is 
not  at  all  encouraged  in  the  British  system.  Originally,  Lloyd 
George's  plan  demanded  a  minimum  membership  of  10,000. 
That  was  modified  in  the  act  as  parsed,  to  5,000,  with  the 
right  of  smaller  societies  to  join  together  within  certain 
geographical  limits  for  purposes  of  valuation  only,  until 
a  theoretical  unit  of  5,000  is  obtained.  But  clearly,  the  small 
independent  fund  is  almost  unthinkable  under  such  conditions. 
The  result  of  this  is  that  there  necessarily  will  be  a  large 
number  of  wage-workers  entitled  to  insurance,  but  either 
unwilling  or  unable  to  form  an  approved  society. 

We  saw  that  Germany  had  inaugurated  a  special  organiza- 
tion for  the  worker  who  might  be  termed  the  "  residual  un- 
insured." Some  provision  is  made  for  them  in  the  British 
act,  but  this  is  far  from  being  satisfactory,  has  been  severely 
criticised,  and,  in  fact,  represents  perhaps  the  weakest  feature 
of  the  new  British  National  Insurance  System.  That  is  the 
system  of  so-called  "  Deposit  Insurance  "  which,  strictly 
speaking,  is  not  insurance  at  all,  but  a  system  of  assisted  and 


COMPULSORY  SICK-INSURANCE  255 

compulsory  saving  for  a  limited  purpose.  The  so-called 
deposit  contributors,  who  are  not  members  of  an  approved 
society,  make  their  contributions  into  the  post  office,  and 
become  owners  of  individual  accounts  which  they  may  not 
overdraw.  As  these  "  contributors  "  will  presumably  be  the 
"  poorer  risks,"  mostly  in  need  of  insurance,  this  system  will 
not  offer  them  too  much.  And  it  is  not  impossible  that  dis- 
crimination against  poor  health,  against  unfavorable  occupa- 
tions, against  advanced  age  may  leave  a  very  large  residuum. 

It  must  be  admitted  that  this  is  recognized  in  the  act 
itself  to  be  a  temporary  makeshift,  undertaken  because  of  the 
fear  of  forcing  these  subnormal  risks  upon  existing  friendly 
societies.  In  the  act  itself,  this  system  is  introduced  pro- 
visionally until  January  1, 1915.  The  results  of  the  experience 
of  the  first  two  years  with  these  risks  may  make  a  special, 
more  satisfactory  insurance  organization  possible.  Surely,  it 
would  seem  that  some  local  insurance  organization  for  these 
lives,  while  it  might  produce  an  unforeseen  deficit,  would  not 
have  been  ruinous  to  the  national  finances,  and  would  have 
spared  the  act  a  good  deal  of  acrid  and,  on  the  whole,  justified 
criticism. 

Finally,  in  the  Russian  system,  in  view  of  the  very  insignifi- 
cant development  of  mutual  aid  societies,  the  organizational 
problem  was  very  much  simpler.  A  new  type  of  institution 
had  to  be  formulated,  and  the  establishment  fund  was  taken 
as  the  starting  point.  Where  the  number  of  employees  is  too 
small,  combinations  of  establishments  were  permitted.  This 
organization  (in  view  of  German  experience  showing  the 
growth  of  local  funds  at  the  expense  of  establishment  funds) 
is  explained  partially  by  the  fact  that  the  Russian  law  applies 
almost  exclusively  to  manufacturing  establishments,  and  also 
by  the  consideration  that  for  many  decades,  the  duty  of  fur- 
nishing medical  and  hospital  aid  was  placed  upon  the  em- 
ployer, and  the  new  system  of  sick-benefit  insurance  was 
-adjusted  to  the  existing  conditions. 

The  first  question  which  naturally  arises  is:  whom  does 
the  law  cover?  Compulsory  insurance  was  forced  upon  the 
state  mainly  because  voluntary  insurance  did  not  protect  all 
those  who  needed  protection.  Evidently  a  law  is  to  be  judged 
by  the  degree  of  meeting  this  difficulty.  An  ideal  law  would 
be  one  which  would  contain  the  broad  formula  of  the  British 


256  SOCIAL  INSURANCE 

Compensation  Act:  "  any  employment/'  But,  for  various 
reasons,  some  of  which  are  administrative,  and  some  may  be 
traced  to  the  resistance  of  the  employers,  perhaps  no  law  is  as 
comprehensive  as  that.  Up  to  1911  the  German  law  included 
industry  and  transportation  and  building  trades,  but  not  navi- 
gation, agriculture,  or  domestic  service.  Very  large  groups 
were  excluded,  some  of  them  until  very  recently,  as,  for  in- 
stance, in  navigation  or  domestic  service,  because  other  pro- 
vision in  case  of  sickness  was  supposed  to  exist,  others  because 
an  additional  burden  upon  employers  was  objected  to  (agri- 
culture), or  because  the  need  was  not  thought  so  great.  Thus, 
the  entire  number  of  insured  was  some  twelve  or  thirteen 
million  as  against  twenty-seven  million  insured  against  acci- 
dents, or  some  20$  of  the  entire  population  as  against  45$. 

During  the  revision  of  the  Insurance  Code  in  1911,  the 
extent  of  the  application  of  the  sick-insurance  systems  was 
materially  increased  by  the  inclusion  of  agriculture,  naviga- 
tion, domestic  service,  teachers,  and  a  few  minor  groups  of 
wage-labor  or  salaried  employment,  so  that  the  number  of  in- 
sured was  increased  by  some  four  or  five  million  persons. 

In  view  of  the  horrible  tales  of  dissatisfaction  created  among 
the  British  housewives  by  the  inclusion  of  domestic  servants 
under  the  National  Insurance  System,  their  noisy  threats  to 
resist  the  law,  their  refusal  to  "  lick  stamps,"  i.e.,  to  con- 
tribute a  few  pennies  a  week  for  the  benefit  of  their  domestic 
help,  it  is  rather  interesting  to  point  out  that  the  identical 
extension  of  the  sick-insurance  system  to  domestic  servants 
in  Germany  was  accepted  without  a  ripple.  Whether  it  was 
a  difference  in  national  character  or  a  question  of  comparative 
familiarity  with  the  methods  and  advantages  of  social  insur- 
ance, is  a  question  which  will  probably  be  answered  differently 
by  the  German  and  English  housewife. 

In  Austria  the  sick-insurance  act  covers  the  same  industries 
as  the  accident  law,  and  is  quite  extensive,  including  manu- 
facturing, mining,  building  and  construction,  land  and  water 
transportation — practically  all  commercial  establishments,  but 
not  domestic  service  or  agriculture,  or  domestic  industries. 
Similarly,  in  Hungary,  according  to  the  revised  law  of  1907, 
almost  all  important  wage-groups  are  covered  with  the  excep- 
tion of  agriculture  and  domestic  service. 

It  is  characteristic  that  the  more  recent  laws  were  more 


COMPULSORY  SICK-INSURANCE  257 

comprehensive  from  the  very  beginning.  The  Norwegian  act 
includes  all  industries  and  groups  of  wage-workers  and 
salaried  employees  of  lower  levels,  not  excepting  either  domes- 
tic service  or  agricultural  wage-labor.  The  British  act  is 
almost  equally  comprehensive,  applying  to  all  employed  per- 
sons with  the  exception  of  persons  in  military  or  naval  service, 
teachers,  agents  working  on  commission,  and  a  few  other 
groups,  for  some  of  whom,  however,  similar  provision  has 
already  been  made  or  is  considered  unnecessary.  An  exception 
to  this  general  tendency  is  the  Russian  law,  which  is  limited 
to  the  factory  and  mine  employees,  and  has  been  severely 
criticised  for  it  by  most  Russian  students. 

Besides  the  limitation  as  to  the  industry,  there  are  others 
as  to  the  economic  status. 

Thus,  the  German  law  excludes  administrative  employees 
earning  6  2-3  Marks  ($1.59)  a  day,  or  2,000  Marks  ($476)  per 
annum,  which  amount  in  Germany,  puts  the  person  in  the 
middle  class,  though  all  workmen  regardless  of  their  earnings 
are  covered.  Approximately  the  same  rule  obtains  in  Austria 
and  Hungary,  where  the  salary  limit  for  administrative  em- 
ployees is  2,400  crowns  ($487). 

In  Norway  the  limit  is  still  narrower,  as  all  employees  are 
excluded  who  earn  1,200  crowns  ($321.60)  in  the  rural  dis- 
tricts and  1,400  crowns  ($375.20)  in  the  urban  districts.  In 
the  United  Kingdom  there  is  a  similar  qualification  of  a 
maximum  salary  of  £160  (less  than  $800)  for  non-manual 
workers.  Thus,  the  limits  established  are  rather  narrow,  and 
in  these  lower  limits  of  the  middle  class,  the  problem  of  illness 
must  also  be  a  serious  one,  and  though  optional  insurance  is 
open  to  them,  the  arguments  in  favor  of  compulsion,  applicable 
to  the  workmen,  also  hold  good  for  these. 

Almost  all  of  these  compulsory  systems  permit  optional 
insurance  to  certain  groups  to  whom  the  compulsory  feature 
does  not  apply.  It  is  not  necessary  to  go  into  the  details  of  the 
qualifications  for  these  voluntary  members  of  the  insurance 
organization.  As  a  rule  they  are  intended  to  embrace  groups 
economically  in  similar  conditions  to  those  covered  by  the 
compulsory  system. 

In  the  case  of  these  voluntary  members,  no  burden  is  placed 
upon  the  employer.  But  they  derive  all  other  advantages  of  a 
well-organized  system  of  sick-insurance.  While  no  data  as 


258  SOCIAL  INSURANCE 

to  the  total  number  of  voluntary  members  in  Germany  is 
available,  the  statistics  of  the  Leipsic  Fund  show  that  they 
constituted  over  5$  of  the  total  membership,  so  that  their 
total  number  for  Germany  may  be  estimated  at  some  600,000. 
For  the  British  system  Lloyd  George  made  an  estimate  of 
some  800,000,  which  seems  reasonable.  But  an  important  dif- 
ference in  this  regard  is  that  the  British  law  does  not  permit 
"  married  women  who  are  not  workers  "  (meaning  wage- 
workers,  of  course — as  the  wives  of  wage-earners  could  hardly 
be  accused  of  being  idlers),  to  become  insured  under  the 
law.  Mr.  George  in  his  speech  x  stated  that  it  would  not  be 
advisable  to  admit  them,  as  "  it  would  be  very  difficult  to 
check  malingering — almost  impossible."  It  may  be  admitted 
that  illness  of  the  housewife  does  not  usually  lead  to  loss  of 
income,  and  yet  there  is  the  inevitable  cost  of  medical  attend- 
ance and  pharmaceutical  supplies,  which  represents  a  distinct 
and  real  financial  loss,  and  may  be  insured  against. 

Though  considerable  variety  is  found  in  the  financial  basis 
of  the  different  compulsory  systems,  both  as  to  the  distribution 
of  the  burden  and  as  to  the  basis  of  actual  contributions, 
nevertheless  a  participation  by  the  employer  in  the  cost  is  an 
essential  feature  of  all  compulsory  systems,  whether  because 
of  the  theoretical  recognition  that  industry  as  such  is  a  factor 
in  causing  disease,  or  simply  as  a  convenient  method  of  reliev- 
ing the  wage-worker's  burden.  Besides,  such  contributions 
appear  as  the  main  justification  of  the  application  of  com- 
pulsion from  the  point  of  view  of  the  unwilling  employee. 

In  Germany  the  employee  (or  insured)  pays  two-thirds  of 
the  cost  and  the  employer  adds  one-third  (or  one-half  as  much 
as  the  employee).  Eecent  energetic  efforts  to  change  the 
proportion  during  the  revision  of  the  insurance  laws,  so  as  to 
make  the  contribution  equal,  have  not  been  successful.  This 
contribution  must  not  entirely  be  charged  to  the  cost  of  sick- 
insurance,  for  it  meets  also  the  cost  of  compensating  the 
accidental  injuries  during  the  first  thirteen  weeks.  Various 
estimates  seem  to  show  that  about  one-fourth  to  one-third  of 
the  employer's  contribution  (8$  to  11$  of  the  total  cost) 
is  needed  to  cover  this  cost  of  accidents.  Substantially  the 
same  situation  obtains  in  Austria,  except  that  the  burden  of 
accident  insurance  carried  by  the  sick-benefit  funds  is  smaller 
1  Loc.  tit.,  p.  13. 


COMPULSORY  SICK-INSURANCE  259 

— only  four  weeks.  On  the  other  hand,  in  Hungary  (where 
the  sick-benefit  funds  take  care  of  accidents  for  the  first  ten 
weeks),  the  employers  and  employees  contribute  equal  amounts. 
The  German  proportion  has  also  been  adopted  in  the  new 
Russian  act,  though  in  the  earlier  drafts  of  the  bill,  which  were 
published  in  the  heat  of  the  revolutionary  era,  the  government 
seemed  inclined  to  place  a  larger  share  of  the  burden  upon  the 
employer.  However,  it  must  be  remembered  that  the  cost  of 
medical  aid — one  of  the  two  main  functions  of  the  sick-insur- 
ance systems — is  in  Russia  entirely  placed  upon  the  employer. 

Finally,  in  the  recent  act  of  Servia  the  contributions  of 
both  employer  and  employee  are  equal,  and  Roumania  is  the 
only  exception  to  the  rule,  placing  the  entire  cost  upon  the 
insured  employee. 

Thus,  the  early  sick-insurance  systems  established  one  im- 
portant principle,  that  of  the  employer's  share  in  the  cost. 
Meanwhile,  the  experiments  with  the  encouragement  of  op- 
tional sick-insurance  gradually  developed  in  various  countries 
into  systems  of  state  subsidy.  And  it  is  quite  significant  that 
this  principle  was  embodied  in  both  recent  compulsory  insur- 
ance acts.  Norway  provides  the  following  distribution  of  the 
dues :  injured  person,  .6 ;  employer,  .1 ;  commune,  .1 ;  state,  .2. 

Here,  then,  the  employer's  share  is  considerably  smaller  as 
compared  to  the  Continental  countries,  and  while  both  the  local 
and  national  treasuries  were  made  to  contribute,  it  evidently 
did  not  decrease  the  workman's  share  any,  only  the  employer 
being  relieved  by  this  state  subsidy. 

In  England,  where  definite  rates  of  dues  are  established 
by  the  recent  law,  the  distribution  is  as  follows: 

For  male  Female 

persons  persons 

Insured   4 d.     .  3d. 

Employer    3d.  3d. 

State    2  d.  2  d. 

the  state  contributing,  in  the  case  of  women,  25$,  and  in  the 
case  of  men,  22.2$  of  the  entire  expense.  From  this  point 
of  view  the  British  system  is  decidedly  superior  to  the  German 
one,  as  it  leaves  upon  the  insured  person  only  44  1-2$  (in  case 
of  the  women  37  1-2$)  of  the  burden  instead  of  66  2-3$,  as 
in  Germany. 

The  distribution  of  the  dues  or  premiums  among  the  two  or 


260  SOCIAL  INSURANCE 

three  parties  is  only  one  aspect  of  the  problem.  The  other, 
perhaps  a  no  less  important  one,  is  the  actual  determination  of 
the  total  dues  necessary  to  meet  the  benefit  requirements 
established  by  the  law. 

Here  again  a  radical  difference  is  found  between  the  Ger- 
man and  the  British  plan.  The  German  plan  presupposes 
financial  autonomy  of  the  individual  sick-funds.  The  law 
establishes  certain  minimum  benefits,  but  permits  their  fur- 
ther extension  both  in  kind  and  in  amount,  though  within  cer- 
tain defined  limits.  Such  extension  of  benefits  evidently  pre- 
supposes a  further  increase  of  dues.  But  even  within  the 
same  iron-clad  limits  of  minimum  benefits,  there  may  be  many 
variations  in  cost,  which  would  call  for  variations  of  dues. 
Such  causes  may  be:  differences  in  the  sex  or  distribution  of 
the  membership,  in  climatic  conditions,  and  in  hygienic  con- 
ditions of  the  trade, — all  these  factors  influencing  the  average 
sick-rate  very  materially.  The  law,  therefore,  requires  the 
dues  to  be  sufficiently  large  to  cover  the  cost  of  the  benefits, 
though  there  are  certain  restrictions  upon  raising  the  work- 
man's contribution  over  4$  of  the  wages,  or  the  total  con- 
tribution over  6$.  Contributions  may  be  raised  above  4  1-2$ 
only  if  it  is  necessary  so  as  to  provide  the  minimum  benefits, 
but  not  for  the  sake  of  additional  benefits. 

In  actual  practice  the  dues  but  seldom  (in  less  than 
1$  of  the  fund)  are  raised  above  the  normal  limit  of 
4  1-2$.  For  over  two-fifths  of  the  funds  the  rates  are  from 
2$  to  3$,  for  about  the  same  proportion  less  than  2$,  and  for 
about  one-fifth  from  3$  to  4  1-2$.  But  as  the  lower  rates  are 
mainly  found  in  very  small  societies,  probably  more  than  one- 
half  of  the  membership  pays  from  2$  to  3$. 

There  has  been  a  very  strong  tendency  for  increase  of  rates, 
either  because  earlier  rates  proved  inadequate  or  because  of 
the  desire  to  raise  the  benefits  above  the  minimum.  Thus,  in 
the  local  sick-funds,  which  now  insure  over  one-half  of  the  total 
number,  the  proportion  of  funds  requiring  dues  over  3$  has 
increased  from  3.2$  in  1888,  to  33$  in  1908,  and  in  the  estab- 
lishment funds  from  3$  of  the  funds  in  1888,  to  27$.  The 
Austrian  plan  is  very  similar.  The  ordinary  maximum  rates 
for  the  minimum  benefits  are  3$,  and  while  under  certain 
circumstances  an  increase  is  possible,  it  is  seldom  used.  In 
Hungary  the  limits  of  rates  established  by  the  law  are  from 


COMPULSORY  SICK-INSURANCE  261 

2#  to  4#  of  the  wages.    In  Norway,  too,  the  actual  determina- 
tion of  the  dues  is  left  to  the  individual  societies. 

As  against  this  system  the  British  act  has  established  a 
uniform  definite  amount  of  dues  as  stated  above,  4d.  and  3d. 
from  the  insured  in  a  total  of  9d.  and  8d.  (for  men  and 
women  respectively).  But  as  this  uniformity  might  create 
a  burden  for  the  lower-paid  strata  of  labor,  certain  exceptions 
are  made  for  them.  Thus,  if  the  worker  earns  less  than  15s. 
($3.75)  per  week,  his  dues  are  reduced  as  follows: 

If  earning  2Y2  s.  (67^)  a  day  or  less 3  d.  (6  cents) 

If        "      2     s.  (50    *)     "       "    "    1  d.  (2     "     ) 

If        "      iy2  s.  (371/2^)     "       "    "    Nothing. 

In  these  cases  the  decrease  in  the  contributions  of  the  em- 
ployee is  not  permitted  either  to  injure  his  rights  to  the  definite 
benefits,  nor  to  affect  the  finances  of  the  society  insuring 
him.  The  difference  is  made  up  jointly  by  the  employer  and 
by  the  national  treasury. 

These  details  were  thought  necessary  because  there  is  rather 
an  important  principle  involved.  That  the  poorer  paid  worker 
should  be  taken  special  care  of  is  eminently  just.  But  who 
should  pay  the  difference?  In  the  original  bill  of  Lloyd 
George  this  was  placed  entirely  upon  the  employer.  ' '  If  you 
make  the  state  pay  the  difference,  then  it  means  that  the  em- 
ployers who  pay  higher  wages  to  their  workmen  will  be  taxed 
for  the  purpose  of  making  up  the  diminished  charge  for  work- 
men of  other  employers  who  are  paying  less;  and  I  do  not 
think  it  would  be  fair.  We  have  come  to  the  conclusion  that 
the  difference  ought  to  be  made  up  by  the  employer  who 
profits  by  cheap  labor. ' ' 2 

The  influence  of  these  employers  was  evidently  strong 
enough  to  modify  this.  If  a  man  does  not  earn  over  2  l-2s. 
he  pays  3d.  instead  of  4d.,  the  extra  Id.  being  met  by  the 
employer.  But  when  the  earnings  fall  below  2  l-2s.,  the  state 
assumes  the  burden  of  Id.  and  the  employer  the  remainder 
(2d.  in  case  of  male  employees  and  Id.  in  case  of  female  em- 
ployees.) Finally,  in  case  of  earnings  under  1  l-2s.,  the 
worker  contributing  nothing,  the  state  again  contributes  Id. 
Perhaps  it  might  be  argued  that  this  additional  contribution 
may  be  considered  a  just  penalty  the  state  should  pay  for 
2  Loc.  cit.j  p.  9. 


262  SOCIAL  INSURANCE 

permitting  wages  to  fall  to  such  low  limits,  now  that  the 
principle  of  the  minimum  wage-scale  has  been  recognized  in 
Great  Britain. 


NOTE  CONCERNING  THE  APPLICATION  OF  THE  BRITISH  NATIONAL 
INSURANCE  ACT 

The  first  report  concerning  the  application  of  the  British 
Sickness  Insurance  System  (Report  on  the  Administration 
of  the  National  Insurance  Act,  Part  I.,  "  Health  Insur- 
ance." London,  1913),  dated  June  30,  1913,  arrived  while 
these  pages  were  in  press,  too  late  to  make  satisfactory  use  of. 
The  main  facts  disclosed  are:  the  very  comprehensive  appli- 
cation of  the  act  during  the  first  year,  notwithstanding  the 
tremendous  administrative  difficulties  and  the  noisy  opposi- 
tion. The  total  number  of  persons  insured  is  estimated  at 
14,500,000.  In  England  alone  it  amounted  to  some  10,862,000 
on  March  30,  1913.  The  distribution  of  this  membership  by 
organizations  is  interesting.  Friendly  societies  claimed 
4,618,000  insured,  and  trade  unions  1,190,000.  Employers' 
Funds  (known  in  this  country  as  establishment  funds)  are 
insignificant,  with  a  membership  of  62,000  only.  New  asso- 
ciations organized  by  industrial  insurance  societies  (primarily 
the  British  Prudential  Insurance  Company)  for  the  policy- 
holders  are  very  strongly  represented,  with  4,455,000  mem- 
bers, or  about  44$  of  the  total.  The  number  of  deposit  con- 
tributors (the  weak  point  of  the  British  system)  is  very  much 
smaller  than  was  expected.  Only  508,000  of  them  registered, 
of  which  36,000  through  error  and  77,000  of  them  subse- 
quently asked  for  transfer  to  some  organization,  leaving  their 
number  at  395,000,  or  about  3J$.  In  Scotland,  too,  there 
were  only  37,000  deposit  contributors  out  of  1,480,000  insured, 
or  only  2.5$.  It  appears  quite  certain,  therefore,  that  when, 
on  December  31,  1914,  the  provisions  of  the  law  concerning 
deposit  contributors  expire,  some  practical  method  will  be 
found  to  grant  these  presumably  subnormal  numbers  the  full 
advantages  of  insurance,  either  by  joining  their  accounts  to- 
gether into  a  number  of  associations,  or  by  offering  approved 
societies  special  inducements  for  taking  them  in. 

During  the  first  nine  months  of  the  application  of  the  act 
342,000,000  stamps  were  sold  in  England,  an  average  of 


COMPULSORY  SICK-INSURANCE  263 

8,900,000  a  week.  Of  this  amount  224,400,000  were  of  the  7d. 
denomination  and  102,500,000  of  the  6d.  denomination,  i.e., 
the  regular  contributions  for  male  and  female  insured,  and 
only  16,000,000  of  odd  denominations.  The  total  revenue 
from  the  sale  of  these  stamps  for  England  alone  was  over 
£9,000,000  or  $45,000,000.  The  total  revenue  for  England 
only,  up  to  May  31,  1913,  was  £15,770,000  ($76,000,000),  of 
which  the  contribution  from  the  exchequer  amounted  to 
£2,688,000  ($13,000,000).  Since  the  payment  of  benefits  be- 
gan six  months  later  than  the  collection  of  contributions,  the 
expenses  were  only  about  $26,000,000,  of  which  $19,000,000 
was  in  payment  to  approved  societies  and  $2,000,000  for 
medical  and  administrative  expenses.  Remembering  that  the 
report  does  not  cover  a  full  year,  and  that  from  40  to  50$  must 
be  added  to  the  data  for  England  to  obtain  complete  data  for 
the  United  Kingdom,  the  total  revenue  of  the  system  may 
be  estimated  at  about  $120,000,000  per  annum,  of  which  about 
$25,000,000  will  be  contributed  by  the  national  treasury. 

A  picturesque  and  significant  detail  is  the  statement  of  the 
U.  S.  Consul  at  Birmingham  (Daily  Consular  and  Trade  Re- 
ports for  July  8,  1913)  that  "  as  a  result  of  the  act  the 
demand  for  patent  and  proprietary  medicines  has  been  re- 
duced by  about  one-third/'  and  that  "  for  the  next  year  it 
is  the  purpose  of  most  of  the  patent  medicine  makers  to  double 
their  advertising."  Here  is  a  new  and  interesting  phase  in 
the  struggle  between  profits  and  social  service! 


CHAPTER  XVII 

COMPULSORY  SICK-INSURANCE 

(Continued) 

BENEFIT  FEATURES 

WHAT  does  the  insured  workman  receive  for  his  contribu- 
tions? That,  after  all,  is  the  crucial  test  of  a  compulsory 
insurance  system.  It  is  a  complex  organization  devised  for 
a  certain  purpose :  to  eliminate  sickness  as  a  cause  of  poverty. 
Two  interpretations  may  be  given  to  this  formula.  One, 
the  narrower  one,  would  demand  that  only  the  bare  necessities 
of  life  be  satisfied,  so  that  illness  should  not  result  in  destitu- 
tion; the  broader  interpretation  would  demand  a  scale  of 
benefits  sufficiently  high  to  permit  the  preservation  of  sub- 
stantially the  same  standard,  for  every  deterioration  of  the 
standard  not  only  means  poverty  in  the  individual  case,  and 
often  leaves  permanent  results,  but  also  has  its  serious  social 
effects. 

The  general  tendency  of  the  compulsory  systems  as  yet  seems 
to  incline  to  the  narrower  interpretation  of  the  functions. 
Most  of  the  laws  establish  minimum  requirements  to  the  bene- 
fits given,  leaving  the  further  extension  of  the  principle  of 
sickness  insurance  to  the  individual  associations.  Such  ex- 
tension sometimes  does  take  place,  and  many  arguments 
may  be  brought  forth  in  favor  of  such  elasticity  of  the  law, 
which  makes  a  finer  adjustment  to  local  and  occupational 
variations  than  would  be  possible  otherwise.  But  nevertheless 
such  voluntary  extensions  must  meet  the  same  difficulties  as 
all  other  forms  of  voluntary  insurance  and  the  minimum  re- 
quirements are  of  utmost  importance. 

An  essential  feature  of  almost  all  laws  (the  British  system 
being  a  notable  exception  to  the  rule)  is  that  their  opera- 
tion is  definitely  limited  to  temporary  sickness,  and  does  not 
extend  to  chronic  ailments  such  as  prolonged  suffering  from 
tuberculosis,  cancer,  etc.  This  limitation  is  not  based  upon  the 

264 


COMPULSORY  SICK-INSURANCE  265 

theory  that  the  latter  cases  are  less  in  need  of  relief.  On  the 
contrary,  it  .is  quite  evident  that  the  economic  results  of  in- 
validity are  very  much  more  serious ;  but  because  these  chronic 
cases  would  introduce  a  serious  complication  into  the  organiza- 
tion of  the  sick-funds,  they  must  be  taken  care  of  in  a  different 
way.  As  at  present  organized,  the  sick-funds  are  based  upon 
the  presumption  of  a  uniform  flow,  both  of  revenue  and  ex- 
penditures. If  they  were  to  undertake  the  care  of  chronic 
cases,  these  would  gradually  but  surely  increase.  That  would 
require  the  accumulation  of  reserve  by  the  funds  to  provide 
for  the  growing  cost,  and  would  introduce  a  complex  actuarial 
demand,  which  a  sick-fund  with  a  rapidly  changing  body  of 
members  is  not  ready  to  meet.  The  German  act,  therefore, 
provides  that  while  the  individual  funds  may  for  themselves 
determine  the  limits  of  continuity  of  benefits,  these  limits  must 
not  be  less  than  26  weeks  and  not  over  52  weeks.  The  lower 
limit  of  26  weeks  is  a  material  improvement  over  the  original 
law  which  provided  for  a  minimum  of  13  weeks;  the  change 
was  effected  in  1903.  Until  that  time  the  great  majority  of  the 
funds  were  providing  the  minimum  benefit  only — to  be  exact, 
17,696  out  of  23,271  in  1903,  or  over  76#,  4,616,  or  some  20#, 
granted  aid  for  more  than  13  but  not  over  26  weeks,  and  only 
962  over  26  weeks.  These  figures  indicate  how  small  the  value 
of  the  optional  provisions,  comparatively  speaking.  Since  the 
change  in  the  law  has  been  made  22,393  out  of  23,240,  or  96# 
of  the  funds,  grant  aid  for  the  minimum  period  of  26  weeks. 

In  Austria  and  Hungary  the  minimum  limit  is  20  weeks; 
though  the  funds  are  permitted  to  extend  this  to  not  over  one 
year,  very  few  have  done  so,  and  the  comprehensive  plan  for 
the  revision  of  the  whole  social  insurance  system,  which  has 
been  seriously  considered  in  Austria  since  1908,  contemplates 
the  extension  of  this  limit  from  20  weeks  to  one  year.  In  Nor- 
way, where  the  system  is  somewhat  more  rigid,  26  weeks  is  the 
only  limit  provided  by  the  law,  i.e.,  all  societies  must  furnish 
aid  up  to  26  weeks  in  case  illness  last  that  long ;  and  no  fund  is 
permitted  to  extend  it  beyond  26  weeks  in  any  one  year.  In 
Russia  the  same  26  weeks'  limit  exists,  and  in  Roumania  the 
limit  is  16  weeks  only. 

In  marked  contrast  to  all  these  laws  stands  the  National 
Insurance  Act  of  Great  Britain,  which  provides  benefits  un- 
limited in  time.  But  in  drawing  comparisons  with  the  German 


266  SOCIAL  INSURANCE 

or  any  other  Continental  system,  it  is  but  fair  to  state  that 
the  British  system  is  a  combination  of  sickness  and  invalidity 
insurance.  The  benefits  for  these  two  conditions  are  different 
and  are  known  under  different  names,  the  "  sickness  benefit  " 
extending  for  26  weeks  only. 

It  has  been  frequently  pointed  out  that  the  lines  of  demar- 
cation between  the  different  branches  of  social  insurance  are 
somewhat  artificial  and  not  always  easy  to  draw.  It  is  quite 
true  that  sickness  insurance  shades  gradually  into  many  other 
branches.  The  point  of  contact  between  sickness  and  in- 
validity has  already  been  noticed.  There  are  many  points  of 
contact  between  sickness  and  accident  insurance  as  well. 

First,  there  is  the  vast  number  of  non-industrial  accidents. 
The  study  of  accidents  as  a  feature  of  modern  industrial 
activity  may  have  had  the  effect  of  obscuring  the  other  division 
of  accidental  injuries  not  due  to  industry,  or,  to  be  more  exact, 
not  due  to  the  special  hazard  of  the  workman.  It  is  true  of 
almost  all  forms  of  sickness  insurance,  compulsory  as  well 
as  voluntary,  that  such  injuries  are  treated  as  would  be  cases 
of  illness.  In  the  same  degree  as  any  other  human  being  is 
the  workman  subject  to  a  vast  variety  of  non-industrial  in- 
juries, in  transportation,  on  streets,  in  elevators,  etc.,  etc.  In 
fact,  it  is  usually  estimated  that  perhaps  one-half  of  his  in- 
juries are  non-industrial  from  this  point  of  view.  The  experi- 
ence of  the  Leipsic  Fund  for  18  years  showed  that  out  of 
538,808  cases  treated,  there  were  42,893  industrial  accidents, 
or  some  8$,  and  62,295  non-industrial,  or  11.5$. 

It  seems  worth  while  to  mention  the  only  exception  to  this 
rule  concerning  non-industrial  accidents  that  the  writer  is 
aware  of.  The  workmen's  insurance  law  of  Switzerland, 
adopted  early  in  1912,  combines  a  voluntary  subsidized  sick- 
ness insurance  system  with  a  compulsory  accident  insurance 
system.  Thus  far  the  Swiss  law  presents  nothing  new  in 
principle.  But  the  original  feature  is  the  compulsory  insur- 
ance against  non-occupational  accidents,  which  extends  over 
the  same  groups  of  wage-earners  who  are  protected  by  the 
compulsory  industrial  (or  occupational)  accident  insurance. 
The  benefits  are  also  the  same  for  the  two  classes  of  accidents, 
and  in  this  respect  the  protection  against  this  class  of  misfor- 
tunes is  stronger  under  the  Swiss  law  than  under  any  other 
law;  for  while  sickness  insurance  ordinarily  grants  only  a 


COMPULSORY  SICK-INSURANCE  267 

protection  limited  in  time,  and  invalidity  benefits,  when  they 
exist,  are  very  meager,  the  Swiss  law  grants  substantial  pen- 
sions for  permanent  disability  and  death  arising  from  non- 
occupational  accidents. 

The  burden  of  cost,  on  the  contrary,  is  altogether  different. 
Instead  of  the  employer  meeting  the  whole  cost,  as  in  case  of 
industrial  accidents,  he  is  entirely  relieved  from  the  burden. 
The  premium  is  to  be  borne  jointly  by  the  individual  insured 
workman  and  the  state,  the  latter  contributing  25$  of  the 
premium.  Nevertheless,  the  employer  is  required  to  assume 
the  duty  of  meeting  the  payment  of  this  premium,  or  rather, 
the  workman 's  share,  and  deduct  it  from  the  employee 's  wages. 
This  is  decidedly  a  novel  contribution  to  the  theory  and  prac- 
tice of  social  insurance,  and  serves  as  an  eloquent  proof  that 
the  last  word  in  this  field  of  social  insurance  has  not  been 
said. 

In  addition  certain  obligations  are  placed  in  several  of  the 
countries  upon  the  sick-funds  in  connection  with  industrial 
accidents,  which  have  already  been  referred  to. 

According  to  the  German  law,  the  sick-funds  furnish  all 
their  regular  benefits,  financial  and  otherwise,  in  case  of  in- 
dustrial accidents  for  the  first  13  weeks.  In  Hungary  the 
limit  is  placed  at  10  weeks,  and  in  Austria  at  4  weeks.  In 
Russia  the  same  13  weeks'  limit  has  been  introduced,  much 
against  the  protests  of  the  labor  delegates  in  the  Parliament, 
while  the  shortest  period,  of  two  weeks  only,  is  found  in  Rou- 
mania.  In  Norway,  on  the  contrary,  only  medical  aid  is 
furnished  by  the  sick- funds  in  case  of  industrial  accidents. 

Thus,  the  sick  and  accident  insurance  laws  are  made  to  dove- 
tail into  each  other,  and  this  in  itself  is  a  desirable  situation. 
But  the  justice  of  thus  forcing  a  part  of  the  cost  of  accident 
compensation  upon  the  sick-funds  has  been  frequently  ques- 
tioned. For  it  must  be  remembered  that  the  sick-insurance 
funds  are  supported  largely  by  the  workmen  themselves.  This 
shifting  of  a  part  of  the  burden  of  accident  compensation  back 
upon  the  workmen  seems  to  be  in  direct  contradiction  to  the 
essential  principle  of  compensation,  that  the  industry  and  not 
the  working  class  should  bear  the  charge.  The  objection  is 
undoubtedly  a  sound  one.  But  it  is  argued  in  its  defense 
that  the  sick-funds  have  a  ready  medical  and  administrative 
organization  for  handling  these  early  stages  of  accidents 


268  SOCIAL  INSURANCE 

and  all  the  numerous  cases  of  minor  injuries  which  require 
only  temporary  aid  and  medical  attention;  that  to  duplicate 
this  organization  for  the  employers '  mutual  accident  insurance 
associations  would  require  a  useless  expenditure,  and  that  this 
administrative  advantage,  and  not  the  hidden  desire  to  shift 
a  part  of  the  cost,  is  the  main  reason  for  this  arrangement. 

The  argument  would  perhaps  sound  somewhat  more  plaus- 
ible if  the  sick- funds  were  required  to  furnish  only  the  medical 
and  surgical  aid,  but  not  the  financial  subsidies  as  well.  It 
is  not  difficult  to  imagine  a  situation  where  the  sick-fund  takes 
upon  itself  all  the  work  in  connection  with  the  care  of  these 
numerous  minor  cases,  but  is  recompensed  from  the  accident 
insurance  institution  for  the  actual  outlay.  In  fact,  this  is  not 
an  imaginary  situation,  but  the  actual  condition  in  several  in- 
dustries where  a  mutual  sick-and-old-age  benefit  fund  existed 
before  the  compensation  idea  was  realized — for  instance,  in  the 
Italian  railroads,  where  strong  pension  funds  exist. 

Here,  again,  the  British  system  presents  a  marked  contrast 
to  the  Continental  ones.  Not  only  has  the  new  law  not  re- 
lieved the  employers  of  any  duties  under  the  compensation 
system,  but  it  is  specifically  provided  that  when  a  disabled 
workman  receives  his  compensation  benefits  he  is  not  to  draw 
his  sick-benefits.  It  is  not  difficult  to  understand  the  reason 
for  this  difference,  when  it  is  remembered  that  the  accident 
compensation  law  preceded  the  sickness-insurance  system 
by  fifteen  years.  In  any  case,  the  possibility  of  a  logical 
method  of  co-operation  between  accident  compensation  and 
sick-insurance  is  another  argument  in  favor  of  the  compulsory 
system.  Where  a  compulsory  sickness  insurance  is  absent, 
either  one  of  the  two  difficulties  may  arise.  On  one  hand,  the 
injured  person  may  be  deprived  of  help  when  he  is  badly 
in  need  of  it  because  of  a  prolonged  waiting  period  (two 
weeks  in  many  British  countries  and  in  most  American  states)  ; 
on  the  other,  there  is  always  the  possibility  of  a  duplication 
of  benefits  from  the  compensation  system  and  from  the  volun- 
tary sick-fund,  thus  making  the  total  compensation  perhaps 
even  greater  than  the  normal  income,  and  thus  furnishing  a 
powerful  stimulus  for  malingering. 

We  now  come  to  the  two  main  functions  of  every  sick- 
insurance  system,  by  which  its  efficiency  must  be  judged: 
namely,  financial  aid  and  medical  aid. 


COMPULSORY  SICK-INSURANCE  269 

The  provisions  for  medical  aid  are  extremely  liberal  in  most 
countries ;  in  Germany  the  minimum  requirements  are  that  the 
fund  furnish  surgical  and  medical  attendance,  free  medicine 
for  twenty-six  weeks,  and  such  therapeutic  supplies  as  eye- 
glasses, trusses,  bandages,  etc.  When  necessary,  the  fund  may 
substitute  hospital  treatment,  and  a  good  many  of  the  larger 
funds  do  so.  In  fact,  a  good  many  of  these  funds  have  ex- 
tended their  organization  of  medical  aid  far  beyond  the 
minimum  requirements.  The  right  to  prescribe  certain  articles 
of  diet  at  the  expense  of  the  fund,  if  in  the  physician 's  opinion 
they  are  necessary,  or  medicinal  baths,  and  similar  services 
has  been  established  by  many  funds. 

The  provisions  are  similar  in  Austria  and  Hungary  (though 
the  minimum  is  limited  to  twenty  weeks),  in  Norway  and  un- 
der the  new  law  in  Great  Britain,  though  in  actual  practice 
the  organization  of  medical  aid  is  perhaps  not  as  liberal 
as  in  Germany. 

The  only  exception  to  this  rule,  as  we  have  already  said, 
is  Russia,  where  the  development  of  medical  aid  for  the  wage- 
worker,  at  least  as  far  as  manufactures  and  mining  are  con- 
cerned, preceded  the  compulsory  sick-insurance  system  by 
many  decades — having  been  established  in  1866  for  manu- 
factures, and  in  1886  in  mining,  as  a  direct  function  of  the 
employer. 

While  it  is  true  that  this  may  be  explained  by  the  inaccessi- 
bility of  medical  aid  in  many  parts  of  Russia,  the  principle 
is  nevertheless  exceedingly  important  and  interesting.  The 
new  law  did  not  disturb  these  relations.  Hospitals  in  larger 
establishments,  and  dispensaries  and  emergency  wards  in 
smaller  establishments,  and  even  maternity  wards  and  con- 
tagious disease  wards  in  certain  cases,  must  be  supported 
entirely  at  the  expense  of  the  employer,  or  private  agreements 
made  between  him  and  private  or  public  hospitals.  The  sys- 
tem is  often  criticised  in  Russia  as  falling  far  short  of  the 
desirable  ideal,  and  the  criticisms  may  be  justified.  Never- 
theless a  useful  lesson  may  be  derived  by  Americans  from  the 
bit  of  statistical  information  that,  according  to  an  investiga- 
tion in  1907,  3,000  establishments  were  provided  with  dis- 
pensaries, 470  with  emergency  wards,  and  2,088  with  hospitals ; 
that  over  2,000,000  workmen  were  thus  furnished  medical 
aid,  at  a  cost  of  over  $6,000,000 ;  that  the  Russian  railroads, 


270  SOCIAL  INSURANCE 

with  a  wage-working  force  of  some  750,000,  had  hospital 
facilities  numbering  over  5,000  beds,  a  medical  and  hospital 
staff  of  nearly  6,000,  and  spent  nearly  $4,000,000  for  medical 
aid.  Here  we  see  an  approach  to  a  socialized  system  of  medi- 
cine, which  would  prove  of  tremendous  usefulness  even  in 
the  United  States  in  view  of  the  excessive  cost  of  medical  aid. 

To  return  to  western  Europe,  the  proper  organization  of 
medical  aid  has  always  been  a  vexed  problem  with  the  sick- 
funds.  A  simple  assumption  of  the  cost  of  medical  and 
pharmaceutical  aid  to  be  obtained  at  the  discretion  of  the 
sick,  and  at  the  customary  level  of  compensation  for  private 
medical  practice,  would  have  proven  an  enormous  burden. 
Even  voluntary  sick-funds  were  forced  to  seek  a  more  economic 
organization,  and  with  compulsory  sick  funds  it  became  a 
very  important  problem.  Contracts  between  funds  and  physi- 
cians became  a  necessity.  Usually  they  have  assumed  one  of 
two  plans,  either  of  which  has  its  ardent  adherents  and  its 
violent  opponents. 

The  question  at  issue  is  the  possibility  of  freedom  of  choice 
of  a  physician.  Under  one  plan,  an  exclusive  contract  is 
made  with  a  physician,  or  two,  who  assume  the  duty  of  treat- 
ing the  membership  for  a  stipulated  sum  or  for  a  per  capita 
charge.  Under  the  other  plan  the  contract  is  made  with  a 
large  number  of  physicians  who  assume  the  obligation  to  give 
treatment  according  to  a  certain  stipulated  charge  per  case. 
Economy  is  urged  in  favor  of  the  first  plan.  On  the  other 
hand,  the  advocates  of  the  latter  plan  insist  that  freedom  of 
choice  of  the  physician  is  a  necessary  condition  of  that  intimate 
relation  of  confidence  and  interest  which  must  exist  between 
physician  and  patient  if  medical  practice  is  to  yield  favorable 
results. 

But  the  Continental  laws  do  not  prescribe  the  conditions  of 
the  contract,  leaving  them  to  the  many  sick-funds.  Here  the 
competition  between  the  physicians  and  the  hard  bargaining 
of  the  sick-funds  has  had  some  very  peculiar  results.  The 
price  for  medical  aid  through  this  competition  was  reduced 
to  such  low  levels,  that  "  physicians'  strikes  "  became  a  com- 
mon occurrence  in  Germany,  hardly  serving  to  increase  the 
confidence  of  the  people  in  the  medical  profession,  no  matter 
how  justified  on  economic  grounds  these  strikes  may  have 
been. 


COMPULSORY  SICK-INSURANCE  271 

The  difficulties  which  the  British  National  Insurance  Act 
encountered  .at  its  very  inception,  and  even  before,  dur- 
ing the  preparatory  stages,  from  the  British  medical  profes- 
sion, are  probably  fresh  in  the  memory  of  every  reader  of 
newspapers.  The  British  physicians  have  evidently  profited 
by  the  sad  experience  of  their  German  colleagues  and  are 
resolved  to  escape  the  ruinous  effects  of  competition.  Organ- 
ized in  a  powerful  British  Medical  Association  and  fully 
conscious  of  their  economic  and  trade  interests,  they  are  de- 
cided to  obtain  a  fair  remuneration  for  their  services,  and 
as  the  issue  seemed  to  be  between  eight  and  six  shillings  per 
capita  as  an  annual  remuneration  for  medical  treatment,  and 
as  four  or  five  visits  seem  to  be  the  annual  average,  it  is 
difficult  to  grow  indignant  over  these  features  of  their  de- 
mands. For,  after  all,  even  a  physician  must  pay  his  bills, 
and  cannot  live  on  the  gratitude  and  love  of  his  appreciative 
patients. 

But  there  was  also  another  aspect  to  the  organized  efforts 
of  the  medical  profession,  which  has  succeeded  in  influencing 
the  law.  Their  association  formulated  "  six  cardinal  points," 
which  they  insisted  should  be  embodied  in  the  law,  and  most 
of  them  were.  These  points  included — the  guaranteed  free- 
dom of  choice  of  physician,  the  removal  of  the  administration 
of  medical  benefits  from  the  friendly  societies  to  certain  insur- 
ance committees,  the  physicians  fearing  to  deal  with  the 
former;  but  the  most  objectionable  demand  was  that  there  be 
placed  an  income  limit  of  £2  per  week  to  those  entitled  to 
organized  medical  benefits,  so  that  all  earning  over  £2  a  week 
should  be  forced  to  use  private  medical  advice,  paid  at  the 
customary  rates  for  such.  Even  this  principle  was  embodied 
in  the  law,  though  in  a  modified  form.  Instead  of  the  definite 
limit  of  £2  the  various  local  bodies  administering  the  law 
were  authorized  to  establish  local  limits.  This  whole  tendency 
is  decidedly  reactionary  and  vicious — as  vicious  and  anti- 
social as  the  efforts  to  suppress  the  so-called  "  dispensary 
and  free  hospital  evil  "  in  the  United  States.  For  it  is  an 
unmistakable  sign  of  the  times  that  private  medical  practice 
is  a  declining  institution,  that  it  is  expensive,  wasteful,  and 
inefficient,  and  that  it  gradually  must  give  way  to  organized 
medical  service.  It  is,  therefore,  exceedingly  significant  that 
the  difficulties  between  physicians  and  the  government  have 


272  SOCIAL  INSURANCE 

moved  the  latter  to  a  threat  of  establishing  a  national  (or 
socialized)  system  of  medicine  with  paid  medical  officers,  if 
no  compromise  could  be  reached.  Whoever  is  familiar  with 
the  splendid  achievements  of  the  organized  rural  medicine 
supported  by  the  "  zemstvos  "  (organ  of  local  self-govern- 
ment) in  Russia,  knows  that  such  a  system  of  socialized 
medicine  is  not  a  Utopia,  but  a  thoroughly  practical  institu- 
tion, and  compulsory  sick-insurance  is  undoubtedly  destined  to 
be  the  force  which  will  help  realize  such  systems  of  social 
medicine. 

The  general  basis  of  sick-benefits  established  by  the  Ger- 
man law  is  one-half  the  wages,  beginning  with  the  third  day 
of  illness.  In  actual  practice  there  are  several  important 
modifications.  The  actual  wages  received  by  the  sick  person 
are  not  taken  into  consideration.  The  sick-funds  pay  one- 
half  the  average  wages  of  the  class  of  persons  for  whom  the 
fund  is  established,  so  that  there  is  one  general  level  of  bene- 
fits for  each  fund,  which  must  not  exceed  4  Marks  (95 
cents),  though  this  rule  may  be  changed  by  the  sick-fund. 
In  communal  sick-insurance  the  basis  was  half  the  wages 
for  unskilled  labor  in  the  locality.  It  still  may  be  said,  how- 
ever, that  in  general  half  the  wages  is  the  normal  sick-benefit. 
In  actual  practice  this  minimum  level  of  50$  is  the  one  used  in 
the  vast  majority  of  cases.  About  2,500  funds,  or  10$,  have 
raised  it  voluntarily  above  the  minimum  limit  of  50$,  and 
only  460,  or  some  2$,  over  66  2-3.  The  same  50$  is  found 
in  other  compulsory  acts,  those  of  Luxemburg,  Hungary,  Rus- 
sia, and  Servia,  while  in  Austria  and  Norway  the  higher  limit 
of  60$  obtains.  Finally,  in  Roumania  an  interesting  effort  is 
made  to  adjust  the  benefit  to  the  economic  need,  by  providing 
50$  for  married  and  only  35$  for  single  workers. 

This  limitation  to  50$  may  perhaps  be  considered  as  the 
weakest  point  in  the  German  and  Hungarian  sick-insurance 
systems.  One  may  admit  without  argument  that  a  subsidy 
of  50$  is  vastly  superior  to  no  subsidy  at  all ;  and  that  a  sick- 
allowance  of  100$  would  be  a  tremendous  stimulus  to  malin- 
gery;  but  somewhere  between  these  two  limits  the  just  level 
must  be  found  and  a  country  which  has  established  a  normal 
standard  of  66  2-3$  for  industrial  injuries  cannot  logically 
persist  in  a  50$  basis  for  sickness,  for  the  degree  of  economic 
need  is  not  in  the  least  affected  by  the  distinction  between 


COMPULSORY  SICK-INSURANCE  273 

sickness  or  accident  injury  in  causing  disability.  As  a  matter 
of  fact,  the  desirability  of  increasing  the  limit  is  freely  ad- 
mitted, but  the  difficulty  of  increasing  the  cost  to  the  worker 
is  quoted  as  the  main  obstacle.  Here,  again,  the  British  sys- 
tem has  departed  from  the  Continental  system.  Instead  of 
a  proportionate  relation  between  earnings  and  dues  on  one 
hand  and  benefits  on  the  other,  the  British  system  collects 
definite  and  equal  dues,  and  correspondingly  it  grants  definite 
and  equal  benefits — 10s.  to  the  men  and  7  l-2s.  to  women  as 
a  sick-benefit — 5s.  after  twenty-six  weeks. 

In  his  exposition  of  the  law,  Mr.  Lloyd  George  was  very 
emphatic  in  proving  the  superiority  of  the  British  method 
because  the  lower  strata  of  the  German  working  class  received 
less  than  that  amount.  The  maximum  wage  to  be  considered 
being  4  Marks,  or  95  cents,  50$  of  that  amounts  to  47.5  cents, 
giving  a  weekly  benefit  of  $2.85,  while  the  British  benefit  is 
$2.44 — not  very  much  less.  The  British  limit  thus  establishes 
an  "  existing  minimum  "  standard,  while  in  the  lower  wage 
groups  the  sick-benefit  of  the  German  system  must  be  decidedly 
inadequate.  As  to  the  higher-wage  groups,  they  are  destined 
to  receive  very  much  less  than  one-half  in  either  country.  The 
average  amount  of  daily  benefit  in  Germany  was  some  30 
cents,  or  $1.80  per  week,  or  considerably  less  than  the  British 
benefit. 

But  of  all  forms  of  sick-benefits,  it  may  still  be  said  that 
their  highest  aim  is  limited  to  prevention  of  extreme  desti- 
tution, and  not  as  yet  to  the  protection  of  the  wage-worker's 
standard. 

In  addition  to  the  sick-benefits  two  other  forms  of  benefits 
deserve  special  emphasis  because  of  their  tremendous  social 
importance:  the  lying-in  benefits  and  funeral  benefits.  The 
lying-in  benefits  open  up  a  very  large  problem  of  their  own. 
In  fact,  there  is  good  authority  in  literature  as  well  as  in 
legislation  to  treat  them  as  a  special  branch  of  social  insur- 
ance— under  the  heading  of  maternity  insurance,  and  at  least 
one  country  (Italy)  has  a  special  national  compulsory  mater- 
nity-insurance system.  For  in  the  life  of  the  working  class 
maternity  has  proved  a  fruitful  source  of  destitution. 

In  the  United  States  this  problem  seems  somewhat  less  acute 
than  in  the  European  countries,  perhaps  because  of  a  stricter 
standard  of  sexual  morality,  and  also  perhaps  of  a  greater 


274  SOCIAL  INSURANCE 

familiarity  of  all  classes  of  society  with  various  methods  of 
suppression  of  childbirth,  notwithstanding  the  many  and 
stringent  statutes  on  the  subject. 

The  inclusion  of  childbirth  as  a  form  of  illness  to  be 
granted  sick-benefits  dates  back  of  compulsory  sick-insurance, 
as  in  all  countries  friendly  societies  or  mutual  benefit  societies 
have  frequently  assumed  this  duty.  But  nevertheless,  such  a 
simple  extension  of  the  term  does  not  altogether  solve  the 
problem.  The  fact  must  be  kept  in  mind  that  maternity,  even 
if  calling  for  expert  medical  aid,  is  not  a  disease  unless 
accompanied  by  complications,  but  a  normal  physiological 
process. 

The  distinction  is  not  only  an  academic  one,  but  one  of 
great  practical  importance.  When  one  or  several  of  the 
numerous  possible  complications  arise,  we  are  dealing  with 
disease  and  resulting  disability  is  undisputed,  so  that  there 
can  be  no  doubt  as  to  the  proper  sphere  for  the  activity 
of  the  sick-funds.  But  the  process  of  child-bearing  may  be, 
in  fact  usually  is,  normal  among  primitive  people ;  and,  among 
women  of  the  wage-working  class  generally,  the  actual  lying-in 
term  is  very  short.  Women  of  the  working  class  frequently 
work  till  the  last  day  before  childbirth,  and  very  soon,  per- 
haps within  one  week,  perhaps  even  sooner,  after  that  event. 
There  is,  therefore,  no  physical  disability.  But  the  results  are 
very  detrimental,  nevertheless.  They  are  injurious  to  the 
health  of  the  mother,  leading  to  numerous  female  complaints ; 
they  are  still  more  injurious  to  the  health  of  the  offspring,  for 
when  motherly  care  in  the  earlier  days  of  infancy  is  lacking, 
it  results  in  an  increased  infant  morbidity  and  mortality. 

There  are  at  least  three  aspects  of  the  problem  of  maternity 
insurance : 

1.  That  of  the  wage-worker's  wife,  who  is  "  not  gainfully 
employed,"  in  the  sense  of  not  bringing  any  money  revenue 
into  the  family. 

2.  That  of  the  married  woman  worker,  who  combines  the 
duty  of  a  wage-earner  with  those  of  a  housewife,  or  at  least  a 
wife,  and  is  only  partially  dependent  upon  her  earnings,  and 
finally, 

3.  That  of  the  unmarried  wage-earning  mother. 

One  need  not  be  shocked  at  the  inclusion  of  the  third  group. 
The  gravity  of  the  economic  problem  of  motherhood  is  directly 


COMPULSORY  SICK-INSURANCE  275 

in  inverse  order  to  that  in  which  the  three  groups  were  placed 
here.  Perhaps  least  important  in  the  normal  family  where  the 
head  of  the  family  earns  enough  for  the  normal  standard,  it 
becomes  often  a  problem  of  life  and  death,  of  crime  or  prostitu- 
tion, in  the  case  of  an  unmarried  mother.  The  argument 
that  the  very  origin  of  the  situation  is  found  in  vice  is  quite 
worthless,  because  economic  problems  must  not  be  confused 
with  one's  personal  views  on  the  proprieties  of  sex  morality. 
The  flat  fact  is  that  motherhood  out  of  wedlock  is  not  a  rare 
phenomenon,  nor  does  it  necessarily  spell  eternal  damnation 
of  the  soul  and  a  hopelessly  incurable  moral  decrepitude.  It 
is  the  purpose  of  social  insurance  laws  to  meet  existing  eco- 
nomic problems — not  to  teach  morality.  And  most  European 
laws  have  frankly  waived  the  "  moral  "  point  of  view.  In 
the  accident  compensation  and  insurance  laws  a  similar  prob- 
lem arose,  and  in  most  countries  the  rights  of  the  wife  and 
children  are  recognized  without  any  demands  for  the  marriage 
certificate  or  other  evidence  of  legitimacy. 

Maternity  benefits  are  of  greatest  importance  in  case  of 
workingwomen,  who  often  are  forced  to  work  until  the  last 
day  before  childbirth,  and  to  return  to  work  too  soon  after  the 
act.  In  many  countries  it  was  found  necessary,  as  a  protection 
against  infant  mortality  primarily,  to  prohibit  employment  of 
women  for  certain  periods  before  and  after  childbirth.  But 
such  legislation  may  lead  to  very  sad  results  unless  some  source 
is  found  to  supply  the  income  of  which  the  workingwoman 
is  deprived ;  and  thus  a  theoretical  argument  is  found  in  favor 
of  a  national  system  of  lying-in  benefits  or  maternity  insur- 
ance. For  purposes  of  convenient  administration  it  may  be 
expedient  to  place  this  function  upon  the  system  of  sick- 
insurance,  but  its  independent  character  need  not  be  ob- 
scured thereby,  for  to  be  thoroughly  effective  it  must  include 
benefits  for  some  time  before  birth  and  for  some  time  after 
birth.  It  was  in  this  way  that  maternity  insurance  for 
women  wage-workers  was  developed  in  Italy,  which  presents 
a  unique  example  because  it  has  organized  a  national  system 
of  compulsory  maternity  insurance  by  the  law  of  July  1,  1910, 
in  absence  of  any  national  sick-insurance  system.  And  this 
law  was  the  direct  outcome  of  an  earlier  act  prohibiting  the 
work  of  women  within  one  month  after  childbirth.  The  sub- 
ject was  thought  of  sufficient  importance  in  Italy  to  create  a 


276  SOCIAL  INSURANCE 

national  organization.  It  covers  all  workingwomen  in  fac- 
tories, etc.,  from  the  age  of  fifteen  to  fifty,  and — this  is  sig- 
nificant— married  and  unmarried  women  alike.  The  system 
is  based  upon  the  contributing  plan,  both  the  employers  and 
employees  contributing  an  equal  amount.  The  total  contribu- 
tion thus  equally  divided  is  1  lira  for  women  15  to  20  years 
old  and  2  lire  for  the  ages  20  to  25,  but  a  distinction  in  rates 
for  married  and  unmarried  women  was  not  even  suggested 
during  the  five  years  of  consideration  of  the  bill.  The 
amount  of  benefit  is  not  very  large  (30  lire,  or  $5.79,  to 
which  the  state  adds  out  of  its  own  funds  10  lire  ($1.93),  mak- 
ing a  total  of  $7.72.)  Still,  the  amount  is  enough  to  meet 
the  cost  of  a  midwife  and  the  bare  necessities  of  life. 

As  far  as  female  wage-workers  are  concerned,  all  the  com- 
pulsory insurance  laws  enumerated  make  a  maternity  benefit 
compulsory  upon  the  various  sick-funds.  To  be  sure,  this 
benefit  is  usually  not  very  great.  In  Germany  in  addition  to 
medical  aid,  etc.,  it  is  a  six  weeks'  regular  sick-benefit,  regard- 
less of  whether  the  mother  is  able  to  return  to  work  or  not. 
If  complications  arise,  the  usual  sick-benefits  are  naturally  con- 
tinued. Both  Hungary  and  Norway  follow  the  German  limit 
of  six  weeks,  while  in  Austria  and  in  Russia  benefits  are  limited 
to  four  weeks  only.  On  the  other  hand,  Great  Britain,  in  ac- 
cordance with  its  principles  of  iron-clad  uniform  benefits, 
grants  a  definite  sum  of  30s.  ($7.50),  in  addition  to  the  normal 
sick-benefits  of  four  weeks.  This  sounds  more  lavish  than  it 
really  is,  because  medical  attendance  is  not  guaranteed  gratis, 
and  the  inevitable  conclusion  is  that  the  30s.  will  be  applied 
to  the  cost  of  medical  aid  and  necessary  nursing. 

In  a  much  less  satisfactory  condition  is  as  yet  the  problem 
of  provision  for  the  more  numerous  cases  of  childbirth  in  the 
wage-worker's  family,  where  the  mother  is  not  a  wage- worker 
herself.  Though  there  is  no  corresponding  loss  of  wages,  there 
are  the  inevitable  extraordinary  expenditures,  not  only  for 
medical  aid  and  supplies,  but  also  for  nursing  and  often  for 
hired  help — such  as  it  is — to  keep  the  household  a-going. 
But  maternity  benefits  to  wives,  together  with  other  exten- 
sions of  benefits  to  members  of  the  family,  are  only  permitted 
to  the  sick-funds  under  all  compulsory  sick-insurance  systems 
but  one.  The  exception  again  is  the  British  system,  which  in 
this  as  in  many  other  aspects  has  gone  beyond  the  established 


COMPULSORY  SICK-INSURANCE  277 

standards  and  has  granted  the  same  benefit  of  thirty  shillings 
to  the  wife  of  the  insured  workingman. 

Funeral  benefits  constitute  the  last  of  the  four  important 
functions  of  nearly  all  forms  of  compulsory  sick-insurance. 
In  view  of  the  well-known  unreasonable  extravagance  in  the 
matter  of  funerals  among  the  poor  of  many  nationalities  in 
the  United  States,  it  is  hardly  necessary  to  argue  that  a  funeral 
is  the  cause  of  many  a  financial  crisis  in  a  workingman 's 
family.  Perhaps  just  because  of  this  extravagance,  many  may 
doubt  the  wisdom  of  the  inclusion  of  funeral  benefits  in  a 
compulsory  insurance  scheme,  as  a  possible  factor  in  further- 
ing such  extravagance.  Compulsory  insurance  is  justified  only 
because  it  intends  to  meet  real  financial  needs,  and  not  fancied 
ones.  But,  as  a  matter  of  fact,  funeral  extravagance  is  much 
less  known  in  Europe  among  the  very  nationalities  and  races 
who  practise  it  so  ostentatiously  in  the  United  States. 

The  funeral  insurance  of  the  European  compulsory  sick- 
insurance  systems  is  devised  on  a  very  modest  basis.  In  Ger- 
many the  required  minimum  is  20  days'  wages,  and  the 
maximum  permitted  to  the  sick-benefit  societies,  40  days' 
wages.  The  same  minimum  limits  obtain  in  Austria  and  Hun- 
gary. In  Norway  the  benefit  is  25  days'  wages,  but  not  over 
50  crowns  ($13.40).  The  new  Russian  law  prescribes  funeral 
benefits  of  from  twenty  to  thirty  times  the  daily  wages.  The 
British  act  is  the  only  one  under  which  no  funeral  benefits  are 
provided,  though  such  as  a  rule  are  given  by  many  of  the 
fraternal  orders  through  which  sick-insurance  is  to  be  effected. 

Surely,  no  extravagance  is  encouraged  by  such  amounts,  and 
the  role  of  funeral  benefits  in  the  structure  of  social  insurance 
is  regulated  to  its  proper  modest  place.  This  is  in  strong 
contrast  to  the  situation  in  many  countries,  the  United  States 
more  markedly  than  any  other,  where  voluntary  commercial 
insurance  has  become  popular  and  millions  of  dollars  are 
spent  for  what  is  nothing  but  an  exaggerated  form  of  funeral 
insurance,  thus  stimulating  artificial  standards  which  are  of  no 
economic  consequence  (one  is  tempted  to  say  of  no  earthly 
use)  to  the  working  class,  while  doing  nothing  or  next  to 
nothing  to  meet  the  real  economic  problems  and  protect  the 
standards  upon  which  life,  health,  and  happiness  directly 
depend. 

Medical  aid,  in  its  widest  meaning,  sick-benefits,  maternity 


278  SOCIAL  INSURANCE 

and  funeral  benefits,  constitute  what  might  be  termed  the 
"  minimum  program  "  of  a  comprehensive  compulsory  sick- 
insurance  system.  But  just  as  certain  groups  not  included  in 
compulsory  membership  are  permitted  to  enjoy  the  advantages 
of  the  system  as  voluntary  members,  so  further  extensions  of 
the  benefit  features  are  permitted  and  encouraged.  These  may 
and  usually  do  take  one  of  the  two  following  forms: 

1.  Extension  of  the  benefits  in  time  or  an  increase  of  their 
amount,  or, 

2.  Extension  of  the  benefits  to  the  insured 's  family. 

It  is  somewhat  difficult  to  gage  the  actual  achievements  of 
the  voluntary  principle  on  these  lines,  especially  as  far  as  the 
second  group  is  concerned.  A  few  very  large  local  funds — 
for  instance,  the  famous  one  of  Leipsic — have  extended  their 
activity  almost  as  far  beyond  the  requirements  of  the  law  as 
the  law  permits.  But  it  is  doubtful  whether,  on  the  whole,  this 
additional  activity  amounts  to  very  much.  We  saw  that  as 
far  as  the  extension  period  of  the  sick-benefits,  or  the  increase 
of  their  rate  above  50$,  are  concerned,  only  a  small  minority 
have  gone  beyond  the  minimum  limits.  One  form  of  voluntary 
benefits  did  grow  in  popularity,  that  is,  the  furnishing  of  medi- 
cal aid  to  members  of  the  family,  because  in  this  direction 
a  great  advantage  could  be  obtained  at  a  very  low  cost.  As 
far  as  sick-benefits  to  members  of  the  family  are  concerned, 
they  amount  to  less  than  3$  of  the  total  sick-benefits  paid. 
The  conclusion  is  inevitable  that  on  the  whole  the  optional 
features  of  the  compulsory  system  were  not  very  much  more 
successful  than  the  voluntary  systems  were.  If  an  improve- 
ment of  the  quality  of  service  of  the  sick-insurance  systems 
is  to  be  accomplished,  it  will  be  through  compulsory  means. 

Our  account  of  compulsory  sick-insurance  systems  in  Eu- 
rope will  not  be  complete  without  at  least  brief  mention  of 
various  special  compulsory  systems  which  are  found  in  addi- 
tion to  the  eight  or  nine  national  compulsory  systems.  By  such 
special  compulsory  systems  are  not  meant  those  which  may 
exist  in  any  private  establishment,  no  matter  how  large  a 
number  of  employees  it  may  embrace,  where  compulsion  to 
join  the  establishment's  sick-fund,  whether  open  or  implied, 
comes  from  the  manager's  office.  But  where  the  compulsion 
is  enforced  by  a  statutory  enactment,  and  is  accompanied  by 
other  features  of  compulsory  systems,  such  as  employers'  con- 


COMPULSORY  SICK-INSURANCE  279 

tributions,  state  subsidies,  and  the  like,  the  system  evidently 
belongs  in  this  chapter,  even  if  limited  to  one  large  industry 
only. 

Even  of  these  to  present  a  complete  list  would  be  a  difficult 
undertaking  indeed.  Information  concerning  them  is  not  al- 
ways easily  available,  and  it  is  a  fact  that  in  most  published 
works  on  workingmen's  insurance,  whether  in  English  or  even 
German,  these  are  seldom  referred  to.  Fortunately,  in  that 
bulky  encyclopedia  of  facts  and  statistics,  the  two  volumes 
of  the  Twenty-fourth  Annual  Report  of  the  U.  S.  Com- 
missioner of  Labor,  on  "  Workmen's  Insurance  and  Com- 
pensation Systems  in  Europe,"  many  of  these  special  systems 
are  described  in  great  detail,  and  at  least  some  of  them  may  be 
mentioned. 

Thus,  France  has  for  many  years  resisted  the  compulsory 
principle  in  workmen's  insurance.  "  It  was  not  applicable  to 
the  Latin  character/'  the  French  delegates  at  the  numerous 
congresses  of  social  insurance  invariably  argued.  The  first 
renunciation  of  this  principle  came  through  the  enactment  of 
the  old-age  compulsory  insurance  law  of  April  5,  1910. 
Nevertheless,  sixteen  years  earlier,  France,  through  the  enact- 
ment of  June  29,  1894,  transformed  the  voluntary  sick-insur- 
ance system  of  the  mining  industry  into  a  compulsory  system 
with  contributions  from  both  employees  and  employers,  and 
state  subsidies  as  well,  the  service  consisting  of  medical  aid, 
sick-benefits,  and  numerous  other  benefits  to  the  members  as 
well  as  their  families.  As  this  system  covers  over  200,000 
persons  and  their  families,  the  principle  of  compulsory  sick- 
insurance  seems  to  have  quite  agreed  with  the  French  char- 
acter. 

In  Italy,  while  the  voluntary  efforts  at  sickness  insurance 
were  very  weak,  large  organizations  for  sick-relief  grew  up 
among  the  railroad  employees,  and  since  1896  it  has  been  made 
compulsory  by  law.  In  1907,  with  the  national  system  of  the 
Italian  railways,  one  large  compulsory  mutual  benefit  society 
was  organized  with  a  membership  of  some  50,000,  the  greater 
share  of  the  contributions  to  which  came  from  the  railroads 
and  less  than  half  from  the  employees  themselves,  and  com- 
prehensive sick-benefits,  so  that  in  Italy,  too,  the  compensation 
principle  was  known  and  approved  since  1896 — fourteen  years 
earlier  than  the  maternity  insurance  law  was  enacted.  Also 


280  SOCIAL  INSURANCE 

in  Russia,  the  railroads  have  had  compulsory  sickness  insur- 
ance for  their  employees  since  1888.  In  short,  throughout 
the  world,  the  compulsory  principle  in  sickness  insurance 
has  been  tried  and  found  effective  in  accomplishing  the  ob- 
jects for  which  sickness  insurance  is  intended.  Perhaps  of 
all  large  industrial  countries,  the  United  States  is  at  present 
the  only  one  in  which  as  yet  compulsory  sickness  insurance  is 
utterly  unknown. 


CHAPTER  XVIII 

BEGINNINGS    OF    SICKNESS    INSURANCE    IN    THE 
UNITED  STATES 

IT  is  well  to  begin  by  stating  the  plain,  unadorned  truth 
concerning  sickness  insurance  in  the  United  States. 

If  social  insurance  be  defined  as  the  sum-total  of  social 
efforts  for  the  solution  of  the  problems  of  poverty  by  in- 
surance methods,  then  of  sickness  insurance  there  is  none 
whatsoever.  But  perhaps  it  is  as  well  to  remember  that 
voluntary  co-operative  efforts  in  the  field  of  workingmen's 
insurance  in  all  countries  preceded  state  interference. 

It  is,  therefore,  to  the  study  of  such  voluntary  co-operative 
efforts  that  one  must  limit  himself  as  far  as  the  problem  of 
sickness  insurance  in  this  country  is  concerned. 

Professor  C.  R.  Henderson  has  very  successfully  summa- 
rized the  situation.1 

"  America  has  no  system  of  industrial  insurance,2  but  a  beginning 
has  been  made  from  various  starting  points — local  societies,  trades 
unions,  fraternal  societies,  employer's  initiative,  private  corporations, 
casualty  companies,  and  municipalities.  .  .  .  Out  of  these  frag- 
mentary, inadequate,  unsystematic  experiments,  the  nation  has  yet 
to  develop  a  consistent  and  worthy  social  policy." 

The  absence  of  social  systems  enacted  through  law  and  the 
prevalence  of  a  multitude  of  voluntary  co-operative  efforts 
make  the  study  extremely  difficult  and  complicated.  Fortu- 
nately for  the  student  who  may  desire  to  pursue  this  ungrate- 
ful task,  a  few  comprehensive  sources  are  available.  There 
is  the  official  Twenty-third  Annual  Report  of  the  U.  S.  Com- 

1  Ch.  R.  Henderson,  Industrial  Insurance  in  the  United  States. 

2  Professor  Henderson  stands  almost  alone  in  using  the  term  "  indus- 
trial  insurance "   as   equivalent   to   "  social "    or   workmen's    insurance. 
While  the  term  in  itself  is  not  objectionable,  it  has  become  so  popular 
in  application  to  a  definite  form  of   commercial  insurance  that  there 
seems    to   be    little    advantage    in    preferring   it    to    those    which   have 
become   popular   in   Europe   and   are   free   from   danger   of   misunder- 
standing. 

281 


282  SOCIAL  INSURANCE 

missioner  of  Labor  entitled,  "  Workingmen 's  Insurance  and 
Benefit  Funds  in  the  United  States,"  replete  with  facts  and 
figures,  but  rather  limited  in  scope,  because  of  the  extremely 
narrow  interpretation  of  the  term  "  workmen's  insurance," 
which  was  made  to  include  only  such  organizations  as  are 
strictly  limited  to  wage-workers,  and  has  entirely  excluded  the 
fraternal  orders,  which,  after  all,  are  the  largest  vehicles  of 
workingmen's  insurance  in  this  country.  Nor  is  the  entire  ex- 
clusion of  commercial  insurance  altogether  justified,  for  the 
efforts  of  industrial  life  insurance  companies,  large  and  small, 
to  furnish  life  and  funeral  insurance,  and  of  the  casualty 
companies  in  the  direction  of  accident  and  health  insurance,  are 
extremely  interesting,  at  least  as  an  indication  and  measure 
of  the  existing  need  of  insurance  among  the  wage-workers 
of  America. 

There  is  also  the  more  comprehensive  and  more  readable, 
but  less  statistical  study  by  Professor  Charles  E.  Henderson 
of  Chicago  University,  which  takes  in  all  possible  phases  of 
the  situation  in  the  United  States  as  it  existed  in  1908. 

A  glance  at  the  size  of  these  two  volumes  might  lead  to  some 
hopeful  conclusions  concerning  workingmen's  insurance.  But 
it  seems  that  the  less  perfect,  the  more  diffuse  and  vague  a 
social  institution  is,  the  more  voluminous  must  necessarily  its 
description  become. 

It  is  much  simpler  to  deal  with  one  uniform  national  sys- 
tem than  with  the  hundreds  of  little  local  plans,  with  all  their 
individual  variations,  errors,  hopes,  and  failures.  When 
making  his  private  investigation,  Professor  Henderson  de- 
plored the  absence  of  authentic  statistical  information,  which 
only  a  governmental  authority  could  obtain,  and  in  view  of  that 
absence  he  was  forced  to  devote  a  good  deal  of  time  and  space 
to  descriptions  of  individual  institutions  of  various  types. 
The  official  investigation  of  the  United  States  Bureau,  pub- 
lished in  1910,  partly  supplied  this  want,  and  in  view  of  the 
bewildering  absence  of  uniform  standards,  it  was  forced  to 
devote  the  largest  part  of  the  reports  to  separate  descriptions 
of  funds,  societies,  etc.  It  is  only  when  the  statistical  sum- 
mary of  these  many  facts  is  carefully  examined  and  compared 
with  the  existing  need,  that  the  pitiful  insufficiency  becomes 
apparent. 

The  future  historian  of  these  extremely  interesting  efforts 


SICKNESS  INSURANCE  IN  THE  U.  S.          283 

and  movements  will  not  fail  to  do  justice  to  the  foreign  influ- 
ences of  this  growth.  The  Germans  with  "  'Krankenkassen, " 
the  English  with  their  strong  adherence  to  fraternal  orders  and 
benefit  features  of  trade  unions,  the  Italians  with  their  "  So- 
cieta  "  and  the  Jewish  communities  with  their  lodges,  semi- 
religious  and  semi-charitable,  have  laid  the  foundations  of  both 
the  main  features  of  sick-insurance,  medical  aid  and  financial 
sick-benefits. 

In  fact,  outside  of  the  immigrant  groups,  the  negroes  repre- 
sent the  only  class  of  population  where  the  habit  of  mutual 
insurance  through  voluntary  association  has  developed  to  the 
highest  degree  in  the  United  States. 

In  other  words,  we  find  in  the  United  States  a  situation 
not  unlike  that  in  European  countries  before  any  remedial 
legislation  developed :  before  not  only  the  compulsory  sys- 
tem was  inaugurated  or  subsidies  granted,  but  before  even 
regulating  and  encouraging  legislation  became  known. 

If  an  effort  is  made  to  classify  all  the  existing  insurance 
channels  dealing  with  the  health  of  the  wage-worker,  the 
following  scheme  may  be  helpful: 

1.  Institutions  conducted  by  the  working  class  and  exclusively  for 

its  benefit. 

Trade  unions:  (a)  National;  (b)  Local. 

2.  Institutions  conducted  exclusively  for  wage-workers,  but  either 

with  some  participation,  or  under  influence  of  the  employer, 
(a)  Railroad  funds;   (&)  Establishment  funds. 

3.  Institutions  of  a  mutual  nature,  conducted  by  wage-workers 

in  co-operation  with  other  social  groups. 

(a)  Fraternal   Orders;    (b)    Local   Lodges;    (c)    General 
Benefit  Societies;  (d)  Special  Sick  Benefit  Funds. 

4.  Institutions  of  a  commercial  character,  operating  for  a  profit, 

and  not  limited  to  the  working  class,  yet  drawing  its  clientele 
primarily  from  it. 

(a)  Industrial  Insurance  Companies;  (&)   Casualty  Com- 
panies, doing  Industrial  Health  Insurance. 

All  the  groups  of  institutions  enumerated,  with  the  excep- 
tion of  the  large  industrial  life  insurance  companies,  include 
sick-benefits  in  their  operations,  and  in  many  of  them  sick- 
benefits  are  the  most  important  function. 

This  lack  of  any  well-defined  division  between  various 
branches  of  workmen's  insurance  is  a  condition  invariably 
present  at  the  same  stage  of  development  in  all  other  coun- 


284  SOCIAL  INSURANCE 

tries  before  workingmen's  insurance  becomes  a  subject  of 
social  planning  and  legislation. 

Naturally  enough  accidents  are  covered  wherever  sick- 
benefits  are  granted.  And  in  view  of  the  absence  of  any 
organized  system  of  accident  compensation  until  very  recent 
years,  industrial  accidents  make  proportionately  much  heavier 
demands  upon  all  these  funds  than  they  do  in  any  European 
system. 

In  addition  to  industrial  accidents,  old-age  and  invalidity 
benefits,  funeral  insurance,  widows'  and  orphans'  subsidies, 
ordinary  life  insurance,  and  even  employment  benefits  are 
found  closely  interwoven  with  sick-benefits,  to  the  hopeless 
confusion  of  all  actuarial  principles,  and  often  to  the  detri- 
ment of  the  organization. 

Perhaps  no  better  evidence  is  possible  of  the  necessity  of 
sick-insurance  and  of  its  recognition  by  the  American  wage- 
workers  than  the  growing  prevalence  of  sick-benefits  among 
the  trade  unions,  which  are,  after  all,  organized  for  a  very- 
different  purpose. 

The  membership  of  the  American  trade  and  labor  organiza- 
tions is  variously  estimated  at  1,500,000  or  2,000,000,  exact 
statistics  not  being  available.  Professor  Henderson  quotes  a 
list  of  120  organizations  with  a  membership  of  1,493,300  in 
1905.  A  recent  estimate  of  the  New  York  State  Department 
of  Labor  places  the  total  at  2,280,000  membership. 

The  federal  investigation  states  that3  "  in  1881  there  were 
about  20  national  and  international  labor  unions  in  the 
United  States,  while  in  1907  there  were  125  or  more,"  but 
no  data  as  to  their  membership  are  given.  Eighty-four  of 
these  are  listed  as  possessing  some  benefit  features.  Every  one 
of  these  84  grants  death  benefits,  but  only  19  of  them  gave 
benefits  for  temporary  disability  (which  includes  sick  and 
accident  benefits). 

The  total  membership  of  these  19  unions  was  about  one- 
fourth  of  the  total  estimate  for  all  organized  labor.  Only 
one-fourth  were  protected  by  sick-insurance  through  their 
unions,  and  they  represent  mostly  the  highest  skilled  and  best- 
paid  trades  in  American  industry. 

The  total  expenditures  of  the  84  national  unions  for  bene- 
fits during  one  year  were  determined  by  the  Bureau  of  Labor 

3  Loc.  cit.,  p.  23. 


SICKNESS  INSURANCE  IN  THE  U.  S.          285 

as  $7,829,121.  Of  this  amount  $5,164,385  was  spent  in  death 
benefits,  and  $832,760  for  temporary  disability  benefits,  or 
a  little  over  10$,  little  more  than  $2  for  each  insured  member. 
The  very  small  levels  of  sick-benefits  indicate  that  this  in- 
surance is  a  burden  which  even  the  highly-skilled  and  highly- 
paid  American  mechanic  cannot  easily  bear.  The  usual  benefit 
(in  10  cases  out  of  19),  is  $5,  which — it  is  necessary  to  remem- 
ber— includes  the  inevitable  expense  for  medical  aid.  In  two 
unions  it  is  $6,  in  one  $10,  and  in  one  $15 ;  both  the  latter  are 
very  small  organizations.  On  the  other  hand,  it  falls  to  $3  or 
$4  in  3  or  4  of  these  unions.  In  the  light  of  such  figures,  the 
imposing  number  of  some  350,000  to  400,000  insured  shrinks 
perceptibly  in  importance. 

The  federal  investigations  have  conferred  a  valuable  and 
difficult  service,  by  compiling  data  not  only  for  the  large  na- 
tional or  international  labor  organizations,  but  also  small  local 
organizations.  In  the  very  nature  of  things  such  an  investi- 
gation could  not  be  exhaustive. 

As  it  is,  the  investigation  covered  530  local  unions,  with 
a  membership  of  173,690.  Among  these  smaller  local  organ- 
izations sick-benefits  were,  relatively,  much  more  frequent. 
Benefits  were  given  for  temporary  disability  (including  sick- 
ness and  accidents)  by  346  unions,  with  103,452  members. 
The  total  amount  expended  for  benefits  by  the  unions 
reporting  did  not  exceed  $457,494,  and  of  this  amount 
$198,190,  or  a  little  over  four-tenths,  was  granted  for 
temporary  disability.  As  over  9,000  members  participated 
in  such  benefits,  the  average  per  beneficiary  was  a  little  over 
$22.  But  the  striking  feature  is  the  very  small  proportion  of 
beneficiaries — less  than  1  in  10,  while  European  statistics 
indicate  a  sick-rate  of  40$  to  50#.  The  only  explanation  is  that 
the  granting  of  benefits  is  hedged  in  with  so  many  conditions 
that  not  all  can  qualify.  The  amount  of  the  sick-benefit  is 
exceedingly  variable,  and  in  strong  contrast  to  a  certain  uni- 
formity found  in  European  countries  where  a  national  system 
exists.  The  rate  varies  between  $2  and  $10,  but  the  predomi- 
nating rate  in  over  one-half  of  the  unions  is  $5  per  week.  The 
maximum  period  for  which  benefits  are  paid  is  rather  short. 
Out  of  316  unions  reporting  the  period  was  13  weeks  in  62 
funds,  from  10  to  12  weeks  in  85  funds,  and  less  than  10  weeks 
in  57  funds,  making  a  total  of  204,  or  two-thirds,  which  do  not 


286  SOCIAL  INSUEANCE 

assist  beyond  13  weeks.  Over  one-half  of  the  funds  do  not  pay 
any  benefits  for  the  first  week  of  sickness  or  for  cases  lasting 
less  than  one  week.  As  far  as  the  searching  official  investiga- 
tion could  discover,  the  total  amount  distributed  by  both 
national  and  local  unions  for  sick-benefits  does  not  much  ex- 
ceed $1,000,000. 

It  is  doubtful  whether  a  much  greater  future  may  be  ex- 
pected of  this  aspect  of  workingmen 's  insurance.  It  is  true 
that  the  present  policy  of  the  leaders  of  the  American  Feder- 
ation of  Labor  is  favorable  to  the  development  of  such  benefit 
features.  And  the  union  undoubtedly  has  certain  essential 
advantages  in  operating  a  benefit  or  insurance  scheme.  To 
begin  with,  it  may  realize  within  its  domain  the  ideal  of  uni- 
versality through  compulsion.  That  may  solve  a  great  many 
difficulties,  especially  in  the  field  of  sickness  insurance,  by 
preventing  an  advance  in  the  average  age  of  the  member- 
ship. A  second  advantage  is  the  uniformity  in  accident  or 
sickness  exposure  which  must  result  from  all  members  of 
the  fund  belonging  to  the  same  trade. 

But  on  the  other  hand,  only  a  small  portion  of  the  American 
working  class  is  united  under  the  banner  of  the  American 
Federation  of  Labor,  and  these  are  the  highly  technical  work- 
ers with  comparatively  high  wage  levels.  The  modern  tendency 
in  American  unionism  is  directed  towards  organizing  the  un- 
skilled trades — where  wages  are  very  low.  In  this  process  of 
organization  the  high  dues  necessitated  by  the  benefit  features 
would  prove  an  obstacle  which  the  labor  movement  is  likely 
to  brush  aside  so  as  not  to  let  it  stand  in  the  way.  If  the  bene- 
fit features  be  made  voluntary,  then  one  of  the  main  advan- 
tages of  the  union  is  dispensed  with.  Nor  is  the  management 
of  a  large  benefit  fund  necessarily  in  the  line  of  the  most 
efficient  leaders  of  an  organization  for  collective  bargaining. 

According  to  the  terminology  used  by  the  governmental  in- 
vestigation, the  Industrial  Benefit  Societies  are  mutual  aid 
societies  organized  on  an  occupational  or  industrial  basis,  either 
local  or  national — a  type  found  to  be  popular  in  many  Euro- 
pean countries  in  which  voluntary  sick-insurance  is  developed. 
This  is  the  type  which  is  growing  in  popularity  in  France, 
Italy,  Spain,  Denmark,  and  other  countries.  In  the  United 
States  this  type  has  not  developed  very  widely.  Only  35 
societies  of  this  type  were  included  in  the  report.  There  is 


SICKNESS  INSURANCE  IN  THE  U.  S.          287 

only  one  organization  among  the  35  described  which  has  a 
large  membership.  That  is  the  German  Kranken-  und  Sterbe- 
kasse  of  New  York,  known  as  the  Workingmen's  Sick  and 
Death  Benefit  Fund,  with  a  membership  of  37,000  and  a 
budget  of  nearly  half  a  million  dollars,  of  which  nearly  one- 
half  goes  for  sick-benefits.  The  total  membership  of  all  the 
funds  did  not  much  exceed  55,000,  and  their  total  budget 
over  $700,000.  Twenty-seven  of  these  funds  granted  sick- 
benefits,  for  which  only  less  than  $250,000  was  used  ($220,- 
000  of  this  amount  by  the  New  York  German  Sick  Benefit 
Fund).  In  other  words,  this  form  of  organization  of  work- 
ingmen  did  not  become  popular.  The  wage-workers  prefer 
either  a  shop  organization  (an  establishment  fund),  or  if 
they  organize  outside  of  the  shop,  do  so  either  through  the 
union  or  by  entering  a  general  fraternal  order. 

Establishment  Funds  have  had  a  higher  degree  of  develop- 
ment in  the  United  States.  Often  the  organization  of  such 
funds  is  encouraged  and  sometimes  enforced  by  the  employer, 
because  experience  has  shown  that  liability  claims  were  less 
frequent  when  immediate  relief  was  given  by  such  a  fund. 
The  official  report,  though  it  does  not  claim  to  be  complete, 
included  461  such  benefit  funds  with  a  membership  of 
342,578.  The  establishment  funds,  in  distinction  to  the  union 
organizations,  are  essentially  sick-benefit  funds.  In  almost  all 
cases  a  small  death  benefit  is  included. 

In  the  establishment  funds  we  find  a  truly  modern  move- 
ment :  of  the  461  funds,  only  5  were  established  before  1871, 
21  were  organized  during  the  decade  1871-1880,  100  in  the 
period  1881-1890,  154  in  1891-1900,  and  181  in  1901-1908. 

Unfortunately,  the  material  collected  by  the  U.  S.  Bureau 
of  Labor,  though  presented  at  great  detail,  is  not  in  such  a 
shape  that  it  can  be  conveniently  studied.  The  exact  informa- 
tion presented  in  regard  to  each  one  of  the  461  societies  is  not 
summarized,  and,  therefore,  many  questions  remain  unan- 
swered. As  establishments  differ  vastly  in  size,  so  do  these 
funds  in  membership  and  financial  operations.  Sixty-eight 
of  the  funds  had  a  membership  of  over  1,000  each ;  10  claimed 
more  than  5,000  members  each,  and  1,  in  the  coal-mine  indus- 
try, as  many  as  26,654,  while  in  the  majority  the  number  is 
only  a  few  hundreds  or  less  than  a  hundred.  Naturally,  the 
total  income  varied  from  a  few  'hundred  dollars  to  $220,000 


288  SOCIAL  INSURANCE 

in  one  case.  The  total  income  of  these  establishment  funds 
amounted  to  some  $2,500,000,  of  which  the  employers  con- 
tributed about  $300,000,  or  only  one-eighth.  Even  if  only 
those  140  funds  be  considered  to  which  the  employers  made 
some  contribution,  their  share  was  only  $300,000  out  of  a 
total  of  $1,800,000,  or  about  one-sixth.  The  spectacular  liber- 
ality of  the  average  American  employer  for  social  welfare 
work  thus  seems  rather  exaggerated.  There  are  but  a  few 
funds  in  which  the  employer's  contributions  are  substantial, 
both  in  themselves  and  in  proportion  to  the  total  revenue  of 
the  funds.  In  the  majority  the  employer's  contribution  was 
small,  often  representing  a  lump-sum  donation  of  $500  or 
$1,000  rather  than  a  definite  proportion  of  the  expenses. 
These  contributions  of  the  employer  represented  rather  the 
part  played  by  "  honorary  members  "  in  European  mutual 
aid  societies,  than  the  recognition  that  the  employer,  the  in- 
dustry, ought  to  bear  a  part  of  the  burden  of  ill-health  to  which 
it  so  largely  contributes. 

There  were  vast  differences  in  the  organization  of  different 
funds  besides  the  question  of  distribution  of  burden.  A  few 
of  these  were  compulsory — 70  out  of  461.  There  was  a  vast 
variety  of  dues  levels,  but  the  usual  dues  were  from  $2.60  to 
$6.00  a  year,  or  from  5  cents  a  week  to  50  cents  a  month. 
A  glance  at  the  tables  in  the  federal  investigation  presenting 
all  these  data  will  impress  very  strongly  this  potent  and  im- 
portant fact :  the  vast  differences  in  the  efficiency  of  sickness 
provision  which  different  labor  groups,  sometimes  in  the  same 
industry  and  the  same  locality,  enjoy. 

The  largest,  most  advertised,  and  best-known  establishment 
funds  are  the  famous  "  railroad  relief  funds."  The  question 
may  be  asked  why  the  railroad  industry  has  done  more  than 
other  branches  of  industrial  life  to  further  insurance  and 
organized  relief.  Several  explanations  are  advanced  by  Pro- 
fessor Henderson : 


"  The  railroad  companies  in  the  United  States  have  made  thus  far 
the  most  important  contribution  to  the  promotion  of  industrial  in- 
surance. They  are  under  the  control  of  men  who  have  large  views 
and  highest  ability.  Mr.  Bryce  says  of  these  men :  '  These  railroad 
kings  are  among  the  greatest  men,  perhaps  I  may  say  the  greatest 
men,  in  America.'  The  long  life  of  these  corporations  is  also  favor- 
able to  large  and  permanent  schemes  of  betterment,  and  if  we  add 


SICKNESS  INSURANCE  IN  THE  U.  S.          289 

the  enormous  resources  of  the  companies,  we  may  account  for  their 
leadership  in  the  field." 

It  would  seem,  however,  that  other,  more  businesslike  and 
material  reasons  were  also  contributing  to  this  growth  besides 
the  greatness  of  the  American  railroad  men,  which  can  scarcely 
be  claimed  to  have  directed  its  efforts  primarily  towards  the 
welfare  of  the  men  employed.  And  such  an  explanation  may 
readily  be  found  in  the  special  railroad  hazard, — as  the  special 
hazard  has  also  caused  a  larger  number  of  establishment  funds 
to  be  organized  in  the  American  mining  industry.  Not  only 
does  a  special  hazard  create  a  greater  need  for  insurance  and 
relief,  but  it  makes  a  relief  fund  a  greater  necessity  as  a 
method  of  prevention  of  liability  suits.  In  fact,  it  has 
been  held  in  several  states  that  the  acceptance  of  relief 
from  a  fund  to  which  the  employer  contributed  was  a  material 
consideration  which  made  the  agreement  not  to  sue  binding, 
while  otherwise  such  an  agreement  would  be  non-enforcible. 
As  a  matter  of  fact,  eight  funds,  managed  jointly,  contain  in 
their  applications  for  membership  or  in  their  constitutions 
a  provision  releasing  the  funds  from  all  claims  for  benefits, 
whenever  a  suit  for  damages  is  brought  against  the  employ- 
ing company.  In  these  funds  the  companies  make  contribu- 
tions as  follows:  One  company  duplicates  contributions;  one 
contributes  20$  as  much  as  the  employees;  three,  15$;  one, 
10$ ;  one,  2$,  and  one  less  than  1$. 

Though  a  good  deal  has  been  said  and  written  of  these 
American  railway  funds,  the  conclusion  must  not  be  drawn 
therefrom  that  the  entire  army  of  railroad  employees,  or  even 
a  large  part  of  them,  are  protected  by  such  funds.  The  in- 
vestigation of  the  U.  S.  Bureau  of  Labor  made  a  very  careful 
canvass  of  these  funds,  and  only  fifty  relief  funds  connected 
with  thirty-seven  railroad  systems  were  discovered. 

Moreover,  these  50  funds  were  of  two  classes — 36  insurance 
funds,  to  which  the  employees  contributed  all  or  a  part  of 
the  revenue,  and  14  pension  systems,  maintained  entirely 
by  the  employing  companies.  These  latter  limit  their  activity 
entirely  to  the  problem  of  superannuation.  Of  the  36  insur- 
ance funds,  almost  all  (31)  paid  temporary  disability,  i.e., 
accident  and  sickness  benefits.  Out  of  approximately  500,000 
employees,  300,000  were  members  of  the  funds  in  1907.  As  the 
total  number  of  railroad  employees  at  the  time  was  nearly 


290  SOCIAL  INSURANCE 

1,700,000,  less  than  20$  of  them  were  protected  in  case  of 
sickness  by  these  funds — while  in  most  European  countries 
compulsory  sick-insurance  for  railroad  employees  exists. 

The  railroad  funds  are  all  of  comparatively  recent  origin. 
Only  seven  were  in  existence  before  1880,  thirteen  were  estab- 
lished during  1880-1890,  eight  between  1890-1900,  and  eight 
in  1900-1907.  Within  recent  years,  notice  of  the  organization 
of  similar  funds  has  reached  the  press,  but  these  institutions 
are  primarily  concerned  with  life  and  accident  insurance. 

The  total  amount  paid  out  by  these  fifty  funds  during  one 
year  amounted  to  over  $5,000,000,  out  of  which  a  little  over 
$2,000,000  was  for  temporary  disability  benefits.  The  pension 
and  sick-benefit  funds  of  the  Pennsylvania  System  are  by 
far  the  largest  of  all  the  funds.  They  alone  granted  benefits 
to  the  amount  of  over  $2,600,000,  of  which  $1,250,000  was  for 
temporary  disability.  The  membership  of  these  two  relief  sys- 
tems numbered  135,000.  The  next  in  importance  were  the 
Baltimore  and  Ohio  funds,  with  a  membership  of  over  50,000 ; 
the  Chicago,  Burlington,  and  Quincy,  with  25,000  members; 
the  Philadelphia  and  Reading  Relief  System,  with  a  member- 
ship of  20,000;  and  the  Atlantic  Coast  Line  R.  R.  Fund, 
with  a  membership  of  12,500.  These  five  railroads,  therefore, 
claimed  nearly  88$  of  the  entire  membership,  and  a  similar 
proportion  of  all  benefits  (over  93$  of  the  disability  benefits). 

This  list  of  five  railroads  practically  exhausts  all  that  was 
accomplished  in  the  way  of  sickness  insurance  for  the  whole 
army  of  railway  employees.  The  following  clause  from  the 
regulations  of  one  of  the  funds  is  significant,  to  say  the  least, 
and  deserves  to  be  reproduced  here  in  full: 

"  The  acceptance  by  the  members  of  benefits  for  injury  shall 
operate  as  a  release  and  satisfaction  of  all  claims  against  the 
company  and  all  other  companies  associated  therewith  as  aforesaid, 
for  damages  arising  from  or  growing  out  of  such  injury;  and 
further  in  the  event  of  the  death  of  a  member,  no  part  of  the 
death  benefit  or  unpaid  disability  benefit  shall  be  due  or  payable  un- 
less and  until  good  and  sufficient  release  shall  be  delivered  to  the 
superintendent  of  all  claims  against  the  relief  department,  as  well 
as  against  the  company  and  all  other  companies  associated  there- 
with as  aforesaid,  arising;  from  or  growing  out  of  the  death  of  the 
member,  said  release  having  been  duly  executed  by  all  who  might 
legally  assert  such  claims;  and  further,  if  any  suit  shall  be  brought 
against  the  company,  or  any  other  company  associated  therewith 


SICKNESS  INSURANCE  IN  THE  U.  S.          291 

as  aforesaid,  for  damages  ensuing  from  or  growing  out  of  injury 
or  death  occurring  to  a  member,  the  benefits  otherwise  payable, 
and  all  the  obligations  of  the  relief  department,  and  of  the  com- 
pany created  by  the  membership  of  such  member  in  the  relief 
fund,  shall  thereupon  be  forfeited  without  any  declaration  or  other 
act  by  the  relief  department  of  the  company;  but  the  superintendent 
may,  in  his  discretion,  waive  such  forfeiture,  upon  condition  that 
all  pending  suits  shall  first  be  dismissed." 

These  conditions  are  rather  interesting  because  the  total 
contributions  of  the  railroads  do  not  exceed  $400,000  out  of  a 
total  revenue  of  $4,000,000,  or  about  10#.  In  the  case  of  the 
Baltimore  and  Ohio  relief  department,  of  a  total  income  of 
nearly  $1,000,000  and  dues  of  $860,000,  the  company  con- 
tributed $16,550,  or  about  1  1-2$. 

As  these  relief  funds  serve  the  double  purpose  of  being 
also  auxiliaries  of  the  personal  injury  claim  department,  very 
little  of  these  contributions  should  really  be  charged  to  social 
welfare  work — most  of  it  is  a  "  sound  business  expenditure. " 

There  are  many  other  interesting  features  concerning  the 
activity  of  these  railroad  funds.  That  the  14  funds 
granting  pensions  are  managed  by  the  employers  exclusively 
goes  without  saying.  Of  the  36  relief  funds,  14  are  admin- 
istered jointly  by  the  employers  and  employees.  In  fact,  the 
practical  administration  in  these  cases  is  in  the  hands  of  the 
railroad  company,  and  the  influence  of  the  membership  slight. 
Only  in  the  smaller  funds  is  the  democratic  principle  recog- 
nized. 

As  the  wages  of  railroad  employees  are  comparatively  high, 
the  dues  and  the  benefits  are  much  higher  than  in  other  funds 
we  have  studied.  In  very  few  instances  do  the  dues  fall  below 
$6  per  year,  and  in  some  cases,  for  the  higher  grades  of  em- 
ployees, they  rise  to  $60.  The  benefits  for  temporary  disability 
in  a  good  many  funds  depend  upon  the  salary  and  dues,  and 
seldom  fall  below  $5  or  $6,  rising  to  $10,  $15,  and  even  $17.50. 

The  existence  of  a  vast  variety  of  workingmen  's  institutions 
for  sick-insurance  in  the  United  States  was  established  in  the 
preceding  pages.  Nevertheless,  no  exaggerated  idea  must  be 
formed  of  their  importance  or  number.  After  all,  how  much 
do  all  these  institutions  amount  to  ?  Counting  in  the  national 
unions,  the  local  unions,  the  local  and  national  workingmen 's 
independent  funds,  the  establishment  funds,  and  the  railroad 


292  SOCIAL  INSURANCE 

funds — how  big  a  part  of  the  working  class  do  they  serve, 
and  how  far  do  they  meet  the  existing  need?  While  an  ac- 
curate census  is  lacking,  an  estimate  may  be  ventured  on  the 
basis  of  the  data  here  gathered. 

SICKNESS  INSURANCE  FOR  WAGE- WORKERS  IN  THE  UNITED 
STATES,  1907 

No.  of  workmen  Amount  spent 

No.  of  covered  on  temporary 

Form  of  organization  funds  (approximately)  disability 

National  unions 19  375,000  $   830,000 

Local  unions   346  100,000  200,000 

Industrial  benefit  funds 35  55,000  250,000 

Establishment  funds 374  300,000  1,200,000 

Railroad  funds   31  300,000  2,000,000 


Approximate  totals 805  1,130,000  $4,480,000 

These  figures  are  not  staggering  if  they  are  compared  either 
with  the  15,000,000  insured  in  Germany,  nearly  25,000  funds, 
and  expenditures  of  $70,000,000  for  sick-benefits.  They  are 
not  likely  to  look  very  hopeful  when  compared  with  the 
nearly  20,000,000  persons  engaged  in  manufactures,  mechani- 
cal pursuits,  trade  and  transportation,  and  personal  service. 
They  may  even  appear  ridiculously  small  when  placed  side 
by  side  with  the  estimated  loss  of  $650,000,000  caused  to  the 
American  workers  through  sickness,  according  to  the  "  Com- 
mittee of  Experts  on  Industrial  Diseases."  And  perhaps  the 
saddest  feature  of  it  all  is  that  as  yet  organized  society  in  the 
United  States  has  done  nothing  even  to  develop  this  im- 
portant matter,  nothing  to  encourage  it,  nothing  to  at  least 
protect  and  regulate  it,  and  save  it  from  ruin  as  a  result  of 
inexperience  and  ignorance.  In  all  the  light  of  the  growth  of 
the  social  conscience,  we  preached  either  self-help  and  dime- 
saving  to  the  needy  class,  or  the  necessity  of  bulky  contribu- 
tions for  hospitals  and  organized  charity  to  the  fortunate  few, 
but  never  considered  the  enormous  importance  of  protecting 
the  benefit  funds  of  the  unions  from  lawsuits,  or  protecting 
the  rights  of  members  of  establishment  funds,  or  granting  some 
special  encouragement  to  the  other  forms  of  industrial  benefit 
organizations. 

The  institutions  and  organizations  described  do  not  em-- 
brace all  of  the  sickness  insurance  which  has  grown  up  in  this 


SICKNESS  INSURANCE  IN  THE  U.  S.          293 

country.  A  workingman  may,  and  often  does,  carry  his  sick- 
ness insurance  as  well  as  other  forms  of  insurance  in  other 
ways  than  through  special  workmen's  organizations,  most  im- 
portant of  which  are  the  so-called  fraternal  orders. 

Though  the  American  fraternal  orders  have  a  membership 
of  nearly  8,000,000,  and,  therefore,  enter  into  the  life  of  25$ 
or  30$  of  all  our  families,  they  have  not  yet  been  studied  with 
any  such  degree  of  thoroughness  as  have,  for  instance,  the 
British  friendly  societies.  It  is  not  even  possible  to  tell 
accurately  to  what  classes  of  population  these  fraternal  mem- 
bers belong.  But  common  observation  would  divide  them 
about  equally  between  wage-workers  and  the  lower  middle 
class.  Professor  Henderson  quotes  the  results  of  an  inves- 
tigation made  by  the  Connecticut  Bureau  of  Labor  for  the 
purpose  of  throwing  some  light  on  the  subject,  and  though 
this  investigation  is  over  twenty  years  old,  yet  the  results  may 
be  quoted  here  for  what  they  are  worth. 

COMPOSITION  OF  MEMBERS  OP  FRATERNAL  ORDERS 

In  societies 

In  societies  without 

Occupation                                                                    with  branches  branches 

Per  cent.  Per  cent. 

In  business 21.16  40.29 

In  professions   5.33  14.74 

Well  paid  mechanics 38.65  27.37 

Lower  paid  mechanics 20.28  6.35 

Clerks 11.20  11.25 

Farmers 66 

Housewives  .  2.72  


100.00  100.00 

This  would  indicate  that,  in  societies  with  branches,  nearly 
60$  were  workmen,  and  in  societies  without  branches  about 
one-third.  No  reason  for  this  remarkable  difference  between 
the  two  types  of  organization  is  apparent,  and  perhaps  50$ 
is  a  fair  estimate  for  the  proportion  of  wage-earners. 

In  so  far  as  fraternal  orders  have  been  discussed  in  economic 
literature,  it  was  mainly  as  life  insurance  organizations,  and 
that  undoubtedly  is  the  largest  part  of  their  work.  It  is  char- 
acteristic of  the  narrow  interpretation  of  the  term  "  insur- 
ance ' '  in  this  country  until  recent  years,  that  a  distinct  line 
was  drawn  between  the  insurance  features  (meaning  life  in- 


294  SOCIAL  INSURANCE 

surance),  and  the  benefit  or  relief  features  (meaning  sickness, 
accident,  and  invalidity  insurance).  The  exact  amount  of 
sickness  insurance  accomplished  by  the  fraternal  orders  cannot 
be  stated.  The  "  Statistics  of  Fraternal  Societies,"  an  an- 
nual publication  of  the  Fraternal  Monitor,  conveys  the 
information,  probably  intentionally  coached  in  a  form  cal- 
culated to  stagger  the  average  imagination,  that  fourteen 
societies  granting  sick-insurance  have  paid  out  in  sick-bene- 
fits since  their  formation,  and  up  to  1911,  no  less  a  sum  than 
$435,599,301.  But  it  is  hard  to  tell  just  what  this  means  if 
translated  into  annual  expenditures,  and  a  comparison  of  this 
statement  in  a  series  of  issues  of  that  publication,  leaves  one 
in  a  somewhat  doubtful  frame  of  mind  in  regard  to  the  ac- 
curacy of  the  figures. 

More  trustworthy  are  the  data  gathered  annually  by  the 
Insurance  Year  Book,  which  combine  fraternal  as  well  as  other 
mutual  sick-benefit  associations.  They  show  an  unmistak- 
able growth  in  popularity  of  sick-insurance  on  a  mutual  scale. 


1901  1905  1910 

Number   of   mutual    sick-benefit 

associations  58  100  119 

Number  of  certificates  written  . .  207,044  478,990  651,776 
Number  of  certificates  in  force  at 

end  of  year 153,907  517,240  825,770 

Total  income $2,091,273  $4,328,577  $5,873,638 

Total  payments 1,996,204  3,996,626  5,580,816 

Total  payments  for  claims 927,123  2,077,857  2,375,967 

This  is  healthy  growth,  to  be  sure,  which  has  increased  the 
active  membership  more  than  thrice  within  ten  years.  But 
there  is  one  very  peculiar  feature  of  these  sick-insurance 
mutuals — the  payments  for  claims  do  not  even  equal  one-half 
of  the  total  income  or  the  total  payments  of  these  organiza- 
tions. The  expenditures  for  administration  were  not  particu- 
larly excessive,  but  the  fees  of  the  physicians  and  the  agents, 
i.e.,  mainly  the  expenses  of  extending  the  business,  consumed 
almost  as  much  as  the  actual  payments  on  claims.  This  may 
partially  explain  the  rapid  growth  in  the  number  of  persons 
carrying  insurance,  but  surely  limits  the  social  usefulness  of 
the  institution  for  mutual  sick-insurance. 

Finally,  mention  must  be  made  of  the  rapid  growth  of  sick- 


SICKNESS  INSURANCE  IN  THE  U.  S.          295 

insurance  commercially  managed  by  the  so-called  casualty 
insurance  companies,  mainly  as  a  side-line  to  the  very  popular 
accident  insurance  business.  This  form  of  sickness  insurance 
is  of  very  recent  growth.  Many  early  experiments  to  organ- 
ize sickness  insurance  on  a  commercial  basis  failed  for 
lack  of  necessary  statistical  data,  but  the  recent  phase  dates 
back  to  about  1896.  Its  earliest  form  was  an  insurance  against 
a  few  selected  diseases,  often  as  a  ' '  free  ' '  addition  to  the  very 
profitable  accident  insurance  policy.  This  was  not  satisfac- 
tory, for  the  necessary  effort  to  distinguish  between  covered 
and  not  covered  diseases  made  the  settlement  of  claims  very 
irritating,  and  while  this  form  of  limited  insurance  is  still 
found,  much  more  popular  is  insurance  against  all  forms  of 
disability  from  sickness.  A  very  popular  form  is  one  which 
commands  a  premium  of  $60  for  the  least  exposed  occupa- 
tions, and  grants  an  accident  insurance  of  $5,000  against 
death  (with  smaller  amounts  for  serious  injuries),  with  a 
$25  weekly  indemnity  for  total  disability,  and  half  that  amount 
for  partial  disability,  and  in  addition,  various  benefits  for 
operations,  hospital  treatment,  and  the  like.  Policies  grant- 
ing half  of  these  benefits  may  be  purchased  for  half  the  price. 

The  number  of  persons  insured  under  this  form  is  unknown, 
but  judging  by  the  growth  of  premium  income,  it  has  been 
steadily  growing  in  popularity.  Thus,  for  the  four  years 
1899-1902,  the  premium  income  for  health  insurance  by  all 
casualties  operating  in  the  United  States  was  a  little  over 
$1,000,000;  for  the  one  year  1905  it  exceeded  $2,500,000, 
and  in  1911  amounted  to  $7,100,000. 

Only  a  small  proportion  of  this  insurance  is  carried  by  wage- 
workers.  To  begin  with,  the  high  premium  usually  paid  an- 
nually, or  at  least  quarterly,  is  not  adaptable  to  the  need  of  the 
working  class.  Moreover,  the  rates  are  very  much  higher  for 
the  mechanical  workers.  Curiously  enough,  while  there  is  no 
adjustment  of  premiums  to  age  (which  in  sickness  insurance 
is  a  factor  of  tremendous  importance),  there  is  a  very  rigid 
adjustment  to  occupation.  Moreover,  the  social  efficiency  of 
this  form  of  insurance,  as  measured  by  proportion  of  payments 
on  claims  to  the  premium  income,  is  not  very  high.  For  the 
twelve  years  1899-1910,  $31,199,551  was  received  in  premiums, 
and  $12,566,457  paid  in  claims,  or  only  slightly  above  40#. 
Still,  this  development  of  sickness  insurance,  though  undoubt- 


296  SOCIAL  INSURANCE 

edly  stimulated  largely  by  the  energy  of  the  ubiquitous  insur- 
ance agent,  may  serve  as  eloquent  evidence  that,  even  in  the 
middle  classes,  the  advantages  of  loss  distribution,  the  advan- 
tages of  a  social  guarantee  in  case  of  sickness  are  now  widely 
appreciated. 

To  meet  the  demands  of  wage-workers  and  persons  of 
smaller  incomes  generally,  the  so-called  industrial  accident 
and  health  insurance  business  has  developed  within  recent 
years,  based  upon  small  monthly  (and  sometimes  quarterly) 
premiums.  Perhaps  the  most  popular  policy  selling  is  the  one 
with  a  uniform  premium  of  $1.00,  to  which  the  benefits  are 
adjusted  according  to  the  occupational  classes,  of  which  nine 
or  ten  are  usually  recognized.  For  this  amount  of  $12  per 
annum,  of  which  perhaps  two-thirds  may  be  charged  to  the 
health  part  of  the  insurance,  is  granted  a  life  indemnity  of 
from  $600  down  to  $100  (in  case  of  accidental  death  only), 
and  a  monthly  benefit  of  $60  down  to  $20  in  case  of  disability 
from  accident  or  disease. 

Of  the  total  amount  of  accident  and  health  insurance,  which 
amounted  in  1911  to  about  $35,000,000,  not  more  than  20$, 
or  $7,000,000,  was  written  on  this  industrial  plan  among  wage- 
workers,  and  of  the  total  amount  of  health  insurance  written 
($7,100,000)  perhaps  some  $1,500,000,  which  would  represent 
some  200,000  insured  workers,  the  majority  of  whom  receive,  in 
case  of  sickness,  a  monthly  benefit  of  $20  to  $30  only.  The  loss 
ratio  on  this  form  of  sickness  insurance  is  extremely  low,  in 
many  companies  not  over  35$,  and  in  some  only  30$,  i.e., 
only  about  one-third  of  the  premiums  return  in  the  form  of 
benefits  to  the  insured.  Besides,  a  comprehensive  investiga- 
tion of  this  industrial  accident  and  health  insurance  by  various 
state  insurance  departments,  a  few  years  ago,  has  demon- 
strated a  deplorable  disregard  of  the  interests  of  the  insured 
and  numerous  frauds  in  connection  with  the  settlement  of 
claims,  so  that  the  social  utility  of  the  entire  industrial  health 
insurance  is  very  doubtful  indeed.4 

To  sum  up  this  dry  but  necessary  account  of  many  tenden- 
cies towards  the  development  of  a  sickness  insurance  system 
in  this  country: 

4  See  Proceedings  of  the  National  Convention  of  Insurance  Commis- 
sioners, 1911,  Vol.  II,  for  the  very  sensational  results  of  this  investigation. 


SICKNESS  INSURANCE  IN  THE  U.  S.          297 

1.  The  great  variety  and  rapidly  increasing  number  of 
institutions  for  the  special  purpose  of  sick-insurance,  as  well 
as  the   extension  into  this  field   of  insurance  substitutions 
primarily  organized  for  life  insurance,  clearly  demonstrates 
not  only  the  need  for  this  form  of  protection,  but  also  the 
appreciation  of  this  need  by  the  working  class  and  the  lower 
middle  class. 

2.  The  preponderance  of  mutual  organizations  in  this  field 
points  the  way  to  the  necessity  of  making  this  insurance  both 
cheap  and  democratic. 

3.  Nevertheless,  only  a  very  small  proportion  of  those  who 
are  in  need  of  it  are  as  yet  provided  with  sick-insurance,  and 
this  is  what  might  be  termed  the  aristocracy  of  the  working 
class. 

4.  With  very  few  exceptions  the  entire  burden  of  the  cost  of 
sick-insurance  falls  upon  the  shoulders  of  the  wage-workers, 
which  is  neither  ethically  just  nor  socially  expedient. 

5.  Organized  society,  which  influences  economic  conditions 
in  so  many  different  ways,  has  as  yet  done  nothing  to  provide 
the  wage-worker  with  sick-insurance,  or  even  to  help  him  to 
provide  it  for  himself  in  the  most  efficient  way.    And,  finally, 

6.  As  sickness  is  in  reality  a  much  graver  economic  problem 
even  than  industrial  accidents,  the  next  step  in  the  develop- 
ment of  social  legislation  in  the  United  States,  after  the  acci- 
dent compensation  problem  has  been  at  least  partially  disposed 
of,  must  be  a  system  of  sickness  insurance. 

It  is  to  be  hoped  that  once  the  first  step  towards  social  insur- 
ance has  been  taken,  America  will  not  for  long  remain  hope- 
lessly behind  Europe  in  other  branches  of  social  insurance. 
The  British  National  Insurance  Law  has  done  great  service 
to  the  American  people,  in  that  it  has  at  last  opened  its  eyes 
to  a  subject  which  has  appeared  like  a  great  mystery  before. 
The  progressive  social  worker  must  learn  to  understand  that 
a  sickness  insurance  law,  even  in  one  state,  can  do  more  to 
eradicate  poverty,  and  is,  therefore,  a  greater  social  gain,  than 
a  dozen  organizations  for  scientific  philanthropy  with  their 
investigations,  their  sermons  on  thrift,  and  their  constant 
feverish  hunt  for  liberal  contributions.  And  still  more  im- 
portant is  it  that  the  wage-worker  learns  to  see  that  a  victory 
won  in  the  field  of  social  legislation  is  a  permanent  gain  in 
the  economic  position  of  himself  and  his  whole  class;  that,  no 


298  SOCIAL  INSURANCE 

matter  how  energetic  he  and  his  more  fortunate  coworkers 
may  be  in  organizing  an  efficient  method  for  industrial  aid, 
there  are  millions  of  workers  weaker  economically,  weaker  in 
organizing  power  and  experience,  who  cannot  be  equally  suc- 
cessful, and  that  their  failure  not  only  injures  them,  but 
depresses  the  whole  working-class  standard.  In  short,  the 
wage- workers  must  learn  to  see  that  they  have  a  right  to  force 
at  least  part  of  the  cost  and  waste  of  sickness  back  upon  the 
industry  and  society  at  large,  and  they  can  do  it  only  when 
they  demand  that  the  state  use  its  power  and  authority  to  help 
them,  indirectly  at  least,  with  as  much  vigor  as  it  has  come 
to  the  assistance  of  the  business  interests,  manufactures,  agri- 
culture, commerce,  and  transportation. 


PART  IV 

INSUEANCE  AGAINST  OLD  AGE,  INVALIDITY,  AND 

DEATH 


CHAPTER  XIX 
THE  OLD  MAN'S  PROBLEM  IN  MODERN  INDUSTRY 

THE  great  discoveries  of  Metchnikoff  have  given  the  human 
race  a  new  hope,  a  new  conception  of  what  the  normal  span  of 
life  ought  to  be.     But  while  these  discoveries  have  not  yet 
reached  the  stage  of  practical  application,  discoveries  equally 
remarkable  in  their  time,  in  the  domain  of  medicine  and  per- 
sonal and  public  hygiene,  have  already  accomplished  a  great 
deal  in  decreasing  mortality  and  prolonging  normal  human 
life.    Within  the  last  century  the  popular  concept  of  the  nor- 
mal milestones  between  youth,  maturity,  and  old  age  has  been 
very  much  affected.     Some  seventy  years  ago,  Balzac  accom- 
plished a  revolution  in  literature  because  he  dared  to  bring 
forth  the  romance  of  a  woman  of  thirty — of  the  Balsacian 
age,  already  passee — while  now  we  quite  earnestly  speak  of  a 
young  woman  of  forty,  and  of  a  man  of  sixty  as  being  in  the 
prime  of  life.    Commerce,  the  professions,  and  politics — espe- 
cially politics — have  furnished  numerous  examples  of  the  ad- 
mirable vigor  and  useful   activity  of  men  past  sixty   and 
even  seventy.     We  look  askance  at  the  man  who  dares  to 
aspire  to  the  highest  and  most  trying  political  office  of  the 
land  before  having  reached  his  fiftieth  birthday.     And  one 
need  only  remember  the  storm  of  very  serious  indignation 
which  was  raised  by  the  humorous  reference  of  Professor 
Osier  to  the  comparative  uselessness  of  men  over  sixty — to 
appreciate  the   beneficent  results  of  a  century  of  scientific 
achievements,  as  they  have  influenced  humanity  towards  a 
wiser,  saner,  more  moderate  mode  of  living,  both  individually 
and  socially. 

Unfortunately,  these  blessings  of  civilization,  like  most 
other  blessings  for  that  matter,  have  not  benefited  all  classes 
of  society — not  in  the  same  degree,  anyway.  For  side  by  side 
with  the  achievements  of  old  age  in  arts,  literature,  business, 
professions,  science,  and  statesmanship,  modern  civilization  on 
its  industrial  side  has  created  the  very  grave  problem  of  super- 

301 


302  SOCIAL  INSURANCE 

animation — the  problem  of  the  jobless,  helpless,  incomeless,  and 
propertyless  old  man  of  fifty. 

Individual  aged  paupers  there  always  were  in  organized 
society,  or  at  least  for  thousands  of  years  back.  We  find  fre- 
quent references  to  them  in  Scriptures, — but  they  were  prima- 
rily individual  problems  and  not  social.  Presumably  indi- 
vidual methods  of  relief,  private  or  church  charity,  served  as 
a  sufficient  remedy.  But  the  socio-economic  problem  of  the  old 
man  or  woman,  as  we  know  it  to-day,  is  specifically  a  problem 
of  modern  society,  a  result  of  the  rapid  industrialization  of 
production  within  the  last  century.  It  is  a  problem  radically 
different  from  that  of  accidents,  in  that  it  is  not  an  abnormal 
occurrence,  but  a  normal  stage  of  human  life.  It  is  different 
from  sickness  in  that  improvement  in  hygiene  seems  to  aggra- 
vate it  rather  than  relieve  it.  It  may  possibly  be  compared  to 
the  problem  of  childhood,  except  that  modern  industrial  life 
has  preserved  the  obligations  of  parents  to  children,  possibly 
because  it  needs  the  children,  but  has  destroyed  the  obligations 
of  children  to  superannuated  parents,  because  there  is  no 
economic  need  of  the  superannuated  parent. 

What  is  the  modern  problem  of  old  age  ?  It  is  the  problem 
of  poverty  caused  by  inability  to  find  employment  because  the 
productive  power  has  waned — and  waned  not  temporarily,  but 
forever.  Evidently,  in  this  form,  the  problem  could  not  exist 
until  the  majority  of  mankind  became  dependent  upon  a  wage- 
contract  for  their  means  of  existence.  It  may  be  said  that 
the  problem  has  always  existed,  because  there  always  were  old 
men  and  women.  In  a  primitive  agricultural  community,  how- 
ever, where  the  patriarchal  family  prevails,  there  can  be  no 
acute  old-age  problem.  The  authority  of  the  patriarch  is 
paramount  and  lasts  longer  than  his  productive  powers. 
When  no  longer  able  to  lead  a  plow,  he  is  still  looked  up  to  for 
advice.  The  family  is  one  large  consumption  unit,  its  mem- 
bers all  prosper  or  starve  together. 

There  are  several  reasons  why  the  rapid  industrial  progress 
of  our  times  constantly  accentuates  it.  The  first  one  is  the 
very  result  of  those  beneficent  effects  of  civilization,  of  gen- 
eral improvement  in  hygiene  and  sanitation,  which  have  re- 
sulted in  a  material  prolongation  of  the  average  human  life. 
While  it  has  not  affected  the  workman  in  the  same  degree  as 
the  higher  classes,  nevertheless  it  did  affect  him  too.  And  in 


THE  OLD  MAN'S  PEOBLEM  303 

the  measure  in  which  it  has  prolonged  the  average  duration 
of  life,  it  has  also  prolonged  the  average  duration  of  old  age. 

There  is  a  good  deal  of  misinformation  concerning  this  point, 
especially  among  many  workmen.  It  is  not  uncommon  to  hear 
the  statement  that  as  the  average  span  of  human  life  is  not 
over  thirty  or  thirty-five  years,  the  problem  of  old  age  con- 
cerns very  few  workmen  only.  But  the  average  duration  of 
life  proves  absolutely  nothing,  and  its  extreme  shortness  is 
due  primarily  to  a  high  infant  mortality.  As  a  matter  of  fact, 
the  probability  of  the  average  human  being  reaching  old 
age,  whether  we  define  it  as  beginning  at  seventy  or  at  sixty, 
is  quite  good.  Even  according  to  the  American  Experience 
Table  of  Mortality  of  100  persons  at  the  age  of  twenty,  53 
will  reach  the  age  of  sixty-five,  and  42  the  age  of  seventy,  at 
which  time  the  average  expectation  of  life  will  be  eight  and 
a  half  years.  If  we  take  100  persons  at  the  age  of  thirty, 
53  will  survive  till  sixty-five,  and  48  till  seventy.  To  make 
the  actuarial  statements  intelligible  to  the  lay  reader,  the 
same  facts  may  be  stated  as  follows : 

Of  all  men  who  have  reached  the  age  of  thirty,  nearly 
three-fifths  may  expect  to  reach  the  age  of  sixty-five,  at  which 
time  they  may  expect  to  have  eleven  more  years  of  old  age ;  of 
the  same  men  at  thirty,  nearly  one-half  survive  at  seventy-five, 
and  still  hope  for  eight  and  one-half  years  on  an  average. 
But,  as  a  matter  of  fact,  the  American  Experience  Table  of 
Mortality  was  compiled  half  a  century  ago,  when  the  primi- 
tive conditions  of  life  in  the  United  States  caused  a  high 
mortality  rate  and  a  short  expectancy  of  life.  Since  then  the 
mortality  rate  has  fallen  in  the  United  States  as  well  as  in  all 
civilized  countries,  and  the  expectancy  of  life  has  risen. 

It  is  true  that,  as  has  been  established  by  statistics  of 
industrial  insurance  companies,  which  extend  their  opera- 
tions primarily  over  persons  of  the  poorer  classes,  their  mor- 
tality rate  is  considerably  higher  and  their  longevity  corre- 
spondingly lower,  but  among  them,  too,  some  improvement  has 
taken  place.  Even  the  American  fraternal  orders,  whose 
membership  at  least  up  to  one-half  consists  of  the  wage- working 
class,  show  an  experience  very  much  more  favorable  than  that 
of  the  American  Table  just  quoted.  Ten  to  fifteen  years  of 
life  (over  sixty-five)  is,  therefore,  a  certainty  to  more  than 
one-half  of  the  wage-workers. 


304  SOCIAL  INSURANCE 

Second,  the  economic  conditions  of  the  wage-contract  accen- 
tuate the  economic  disability  of  old  age.  Under  normal 
physiological  conditions,  old  age,  unless  preceded  by  a  definite 
chronic  ailment,  should  lead  to  a  gradual  failing  of  the  pro- 
ductive powers.  As  the  medieval  independent  worker  became 
old,  he  worked  less  and  produced  less,  but  he  went  on  working 
as  long  as  he  could  produce  something.  In  an  agricultural 
community,  the  usefulness  of  an  old  man  or  woman  does  not 
cease  until  actual  senility  is  established,  and  actual  senility 
is  a  comparatively  rare  phenomenon.  But  under  a  wage- 
system,  the  condition  is  altogether  different. 

The  economic  disability  of  old  age  may  arise  suddenly 
while  the  aging  worker  is  still  fit  for  productive  activity,  but 
finds  himself  below  the  minimum  level  of  productivity  set  by 
the  employer. 

Thus  the  economic  activity,  and,  therefore,  the  income,  stops, 
not  because  productive  powers  have  altogether  failed,  but  be- 
cause they  have  begun  to  decline,  and  not  an  accurate  physio- 
logical test,  but  the  employer's  opinion,  has  the  decisive  force. 
Thus,  economic  old  age  in  the  vast  majority  of  cases  arrives 
very  much  earlier  than  physiologic  old  age,  as  a  result  of  the 
wage-system. 

There  is  a  third  very  important  factor  which  works  in  con- 
junction with  the  first  two  to  lengthen  the  period  of  old  age. 
We  saw  how  under  improved  sanitary  conditions  it  is  length- 
ened at  the  distal  end.  But  under  the  constantly  growing  in- 
tensity of  labor  it  is  also  growing  at  the  proximal  end.  Even 
physiologically  speaking,  old  age  actually  arrives  earlier  than 
it  did,  at  least  in  the  case  of  the  workingman.  Perhaps  there  is 
no  better  illustration  of  the  glaring  economic  contrasts  of  mod- 
ern social  life  than  the  difference  of  the  effect  of  old  age  upon 
the  propertied  classes  and  the  wage-workers.  The  constant 
speeding  up  of  the  industrial  processes,  the  almost  inhuman 
intensity  of  effort  which  grows  even  more  than  in  direct  pro- 
portion to  the  shortening  of  the  workers'  hours,  the  work 
at  great  depths  in  mines,  or  dizzy  heights  in  building  opera- 
tions, the  ever-present  danger  of  bodily  injury,  all  these  facts 
have  their  effects.  We  have  scarcely  begun  to  study  the  prob- 
lem of  pathological  effects  of  fatigue,  but  that  it  must  result 
in  producing  premature  old  age  is  quite  evident  The  result 
is  the  pathetic  problem  of  the  man  at  fifty,  of  which  we  hear 


THE  OLD  MAN'S  PROBLEM  305 

so  much  at  frequent  intervals,  and  which  threatens  to  become 
the  problem  of  the  man  at  forty-five.  Modern  tendencies  in 
industry  all  work  together  to  aggravate  this  situation. 

Industrial  efficiency,  scientific  management,  Taylor  system 
— these  are  all  forces — as  at  present  utilized — to  use  up 
human  energy  at  greater  speed,  within  a  shorter  time,  even 
though  at  a  higher  cost  if  necessary,  and  to  dispense  with  it 
immediately  its  high  degree  of  efficiency  begins  to  decline. 
The  rapid  increase  in  the  investment  of  fixed  capital,  the  con- 
sequent increase  in  fixed  and  overhead  charges  make  such 
scientific  management  highly  desirable,  if  not  necessary.  One 
might  say  that  this  is  the  defense  of  machine  production  to 
the  shortening  of  hours  and  prohibition  of  night  work,  en- 
forced by  the  growth  of  organized  labor,  and  which — the  old 
economists  were  anxiously  teaching — must  ruin  machine  indus- 
try by  forcing  millions  of  investments  to  remain  idle  fourteen 
or  sixteen  hours  out  of  twenty-four. 

It  is  not  an  easy  matter  to  give  a  statistical  corroboration 
of  these  principles,  but  a  few  suggestive  figures  from  American 
statistics  may  be  quoted.  In  1880  the  number  of  persons 
sixty-five  years  and  older  constituted  3.5$;  in  1890,  3.9$;  in 
1900,  4.2$,  and  in  1910,  4.3$,  showing  a  constant  increase  in  the 
proportion  of  older  persons.  To  make  the  data  comparable 
with  the  occupational  statistics,  let  us  take  only  males  above 
fifteen  years  of  age.  The  number  of  persons  over  sixty-five 
years  old  per  1,000  men  over  fifteen  has  increased  from  fifty- 
four  in  1880,  to  sixty  in  1890,  and  sixty-three  in  1910.  Ac- 
cording to  occupational  statistics,  however,  among  males 
gainfully  employed  and  over  fifteen  years  of  age,  persons  of 
sixty-five  years  and  over  constituted  only  50  per  1,000  in  1890 
and  47  per  1,000  in  1900.1  Thus,  the  proportion  of  old  men  in 
the  country  was  increasing,  while  the  proportion  of  old  men  in 
gainful  occupations  was  declining. 

Perhaps  there  is  a  still  better  way  of  putting  the  same  facts. 
In  1890,  of  all  men  over  sixty-five  years  of  age  73.8$  were  gain- 
fully employed ;  in  1900,  or  ten  years  later,  only  68.4$.  This 
is  a  difference  of  5.4$,  and  the  total  number  of  men  over 
sixty-five  in  1900  being  1,555,000,  the  inevitable  conclusion  is 
that  the  economic  progress  of  ten  years  meant  an  additional 

*For  1910,  the  data  concerning  occupation  are  unfortunately  not  yet 
available  at  this  writing. 


306  SOCIAL  INSURANCE 

100,000  or  so  men  thrown  out  of  employment.  Even  these 
figures  do  not  tell  the  whole  story.  In  agriculture  age  is  not 
such  a  serious  obstacle.  In  professions  even  less  so.  As  a  re- 
sult we  find  that  in  agriculture  6.1$  of  the  men  employed  are 
over  sixty-five  years  old,  in  the  professions,  5.5$,  but  in  manu- 
facturing and  mechanical  pursuits  only  3.5$,  and  in  trade  and 
transportation  only  3$.  In  so  far  as  the  older  men  are  not  alto- 
gether thrown  out  of  the  industrial  field,  they  are  shifted  to 
unskilled  occupations.  Among  unskilled  laborers  the  percent- 
age of  males  over  sixty-five  years  is  12$,  and  among  railroad 
employees  only  5$. 

It  is  very  important  for  the  proper  understanding  of  the 
old-age  problem,  to  grasp  the  full  meaning  of  what  one  might 
call  "  the  iron  law  "  of  the  increase  of  old-age  dependency 
under  a  system  of  wage-labor,  because  of  the  widely  prevalent 
tendency  to  look  for  explanations  either  in  exceptional  mis- 
fortune or  in  psychological  or  ethical  failings.  In  a  very  recent 
work  on  Old  Age  Dependency  in  the  United  States,  the  au- 
thor,2 discussing  the  causes  leading  to  old-age  dependency, 
says: 

"  After  the  age  of  sixty  has  been  reached,  the  transition  from  non- 
dependence  to  dependence  is  an  easy  stage — property  gone,  friends 
passed  away  or  removed,  relatives  become  few,  ambition  collapsed, 
only  a  few  short  years  left  to  live,  with  death  a  final  and  welcome 
end  to  it  all — such  conclusions  inevitably  sweep  the  wage-earner  from 
the  class  of  hopeful  independent  citizens  into  that  of  the  helpless 
poor." 

All  of  which  is  undoubtedly  true.  But  this  only  scratches 
the  causes  of  old-age  distress  on  the  surface:  at  least  as  far 
as  the  wage-earner  is  concerned,  what  constitutes  the  crucial 
cause  is  not  so  much  the  loss  of  relatives,  friends,  ambition, 
or  property,  as  the  loss  of  the  job  and  the  inability  to  find 
another  because  of  the  failing  physical  powers. 

Nevertheless,  the  factors  so  eloquently  enumerated  by  Mr. 
Squier  do  play  an  important  part  in  contributing  to  old-age 
distress.  They  represent  the  dangers  which  stare  in  the  face 
a  large  proportion  of  the  middle  class.  If,  as  industrial  statis- 
tics conclusively  show,  the  wage-working  class  is  rapidly 

2  See  Welling  Squier,  Old  Age  Dependency  in  the  United  States, 
pp.  28-29. 


THE  OLD  MAN'S  PROBLEM  307 

growing  in  numbers  and  proportions  in  all  industrial  coun- 
tries, this  can  take  place  only  at  the  expense  of  the  middle 
class — especially  the  lower  middle  class.  Thousands  and  hun- 
dreds of  thousands  of  this  class  have  the  struggle  of  their 
lives  to  hold  on  to  that  class,  and  while  holding  on,  to  accumu- 
late enough  for  old  age.  Some  succeed  well,  others  not  at  all, 
and  even  among  those  who  have  been  successful  to  a  degree, 
an  unexpected  or  unprovided  for  misfortune  may  send  them 
tumbling  down  the  social  ladder.  If  it  happens  in  youth  or 
middle  age  it  may  mean  only  an  additional  recruit  in  the  army 
of  wage-workers,  who  sometimes  may  even  succeed  in  climb- 
ing back.  But  at  an  advanced  age  it  may  spell  ruin  and 
pauperism.  What  student  of  social  conditions  has  not  come 
across  these  derelicts  of  humanity?  Every  year  there  are 
from  ten  to  fifteen  thousand  failures  in  the  United  States  im- 
portant enough  to  be  recorded  statistically,  and  probably  many 
times  as  many  very  small  business  collapses  which  cannot  even 
be  dignified  by  the  name  of  failures,  because  there  was  no 
credit  to  begin  with.  It  is  for  this  phase  of  the  subject  that 
the  data  of  the  Massachusetts  Commission  concerning  the 
amount  of  property  held  at  some  time  by  the  poor  is  so  valu- 
able. We  are  told  that  out  of  12,322  poor  persons,  4,677,  or 
37.9#,  claimed  to  have  had  some  property ;  that  out  of  these 
erstwhile  property-owners  23.3$  had  less  than  $500,  22.8# 
from  $500  to  $1,000,  and  53.9$  over  $1,000;  that  out  of  these 
4,677  property-owners,  2,624,  or  56.1$,  had  sustained  losses: 

Through  extra  expense  for  sickness  and  emergencies 60.1 

Through  intemperance  and  extravagance 6.2 

Through  business  failures  and  bad  investments 25 . 4 

Through  fraud 5.1 

Through  fire 3.2 

Of  course,  such  data  can  have  but  a  very  slight  degree  of 
accuracy,  as  one  will  readily  perceive,  but  they  are  interesting 
in  the  clear  indication  they  give  of  the  presence  of  the  middle- 
class  element  among  the  aged  poor.  No  loss  of  property  will 
transform  the  wage-worker  into  a  pauper  as  long  as  he  is  in 
a  physical  condition  to  command  a  job,  and  a  job  is  to  be  had. 

More  important,  therefore,  than  the  financial  or  sentimental 
misfortunes,  are  the  palpable  physical  disabilities  from  which 
the  aged  poor  are  suffering.  Of  the  aged  poor  studied,  the 


308  SOCIAL  INSURANCE 

Commission  found  22.9$  to  be  able-bodied — yet  poor  neverthe- 
less ;  61.6$  were  wholly  incapacitated,  and  15.5$  partially  so. 

Defective  physical  conditions  were  varied  and  many — 
26.9$  were  aged  and  infirm,  32.4$  suffered  from  chronic  dis- 
eases, 23.1$  were  rheumatic  (and  who  has  any  use  for  a  rheu- 
matic laborer?),  and  13.3$  were  crippled,  maimed,  and  de- 
formed. Others  were  feeble-minded,  epileptic,  blind,  or  deaf 
and  dumb,  but  such  rarer  conditions  are  not  typical.  That 
nearly  one-seventh  were  either  crippled  or  maimed  throws  a 
rather  interesting  light  upon  the  results  of  the  old  system  of 
employer's  liability  which  contributes  its  share  to  old-age 
destitution. 

A  chronic  disease,  a  permanent  injury  are  doubly  destructive 
of  earning  capacity  when  combined  with  old  age.  But  in 
thousands  of  cases  they  are  of  themselves  sufficient  to  produce 
loss  of  earnings  and  destitution.  It  is  for  this  reason  that 
there  is  a  close  relationship  between  the  problems  of  old  age 
and  invalidity,  which  forced  many  countries  to  handle  these 
two  problems  through  a  combined  organization.  For,  in  one 
sense,  invalidity  may  often  be  defined  as  premature  old  age. 
Officially,  old  age  begins  at  seventy,  under  some  laws  dealing 
with  the  problem ;  in  other  countries,  at  sixty-five  or  at  sixty ; 
and  in  a  few  special  organizations  for  old-age  provision, 
under  certain  conditions,  even  at  an  earlier  age.  But  all  these 
definite  limitations  between  middle  and  old  age  are  as 
unreliable  as  the  calendar  limits  for  the  coming  of  spring  and 
summer  on  a  certain  date.  As  economic  old  age  may  come 
long  before  physiologic  old  age,  so  invalidity  is  but  a  form  of 
premature  physiological  old  age. 

How  extensive  is  the  need  for  some  definite  system  of  old- 
age  provision?  An  accurate  answer  for  the  United  States 
presents  many  difficulties.  Old  age  in  itself  is  an  elusive 
concept,  but  dependent  old  age  is  still  more  difficult  to  define. 
Only  after  various  systems  of  old-age  relief  were  introduced, 
has  the  number  of  persons  availing  themselves  of  it  been  deter- 
mined, thus  giving  an  indication  of  old-age  need.  After  all, 
the  situation  is  not  very  much  different  from  that  found  in 
regard  to  the  other  branches  of  social  insurance — that  a  care- 
ful estimate  was  not  possible  until  the  insurance  system  was 
introduced ;  and  accident  and  sickness  statistics  are  best  where 
the  insurance  system  is  most  perfect. 


THE  OLD  MAN'S  PROBLEM  309 

When  the  statistics  of  the  countries  are  studied  which  have 
introduced  a  system  of  old-age  relief,  the  number  applying 
for  it  is  simply  appalling.  Anticipating  our  discussion  of  old- 
age  pensions,  we  may  briefly  state  that  the  British  act  of  1908 
grants  a  small  weekly  pension  to  every  person  over  seventy 
who  is  not  in  possession  of  an  income  of  $105  per  annum. 
At  the  time  the  law  passed,  it  was  expected  that  386,000 
persons  would  be  entitled  to  this  pension.  During  the 
first  year  of  the  application  of  the  act  the  number  of 
applicants  rose  to  667,000,  so  that  in  a  population  of  44,- 
000,000,  9  per  1,000  were  over  seventy  years  old  and  had  an 
income  of  less  than  $2  per  week ;  and  this  in  addition  to  some 
414,000  paupers  in  poorhouses  and  other  public  institutions. 
As  the  total  number  of  persons  over  seventy  years  was  ap- 
proximately 1,250,000,  this  means  that  nearly  1,080,000,  or 
86$,  of  the  men  and  women  of  that  age  needed  relief.  The 
number  of  men  and  women  of  that  age-group  with  an  income 
sufficient  to  make  a  pension  unnecessary  was  estimated  origi- 
nally at  393,000.  It  evidently  proved  to  be  just  about  one- 
half  of  that. 

It  is  admitted  that  pauperism  in  England,  and  especially 
old-age  pauperism,  exists  (or  perhaps  it  should  be  said  "  ex- 
isted "  ? )  on  a  larger  scale  than  in  some  other  industrial  coun- 
tries, and  particularly  in  the  United  States.  But  no  one 
expected  France  to  be  the  country  of  pauperism.  France  with 
its  frugality,  thrift,  love  of  saving  and  investments,  France 
with  its  few  children,  and  a  shrinking  population  which  has 
already  stimulated  a  current  of  immigration  from  Italy,  Spain, 
Russia.  Nevertheless,  when  pensions  of  $2  to  $4  a  month 
were  granted  in  1907  to  aged  persons  with  an  income  of  less 
than  $6  per  month — over  half  a  million  persons  qualified  for 
this  pension.  As  the  number  of  persons  seventy  years  or 
over  in  a  population  of  40,000,000  could  not  be  much  more 
than  1,200,000,  that  meant  about  one-half  of  that  age-group. 
In  Denmark,  that  prosperous  little  country,  whose  achieve- 
ments in  democracy,  in  agriculture,  in  mutual  aid,  and  co- 
operation have  been  the  wonder  of  the  world,  35$  of  the  popu- 
lation over  seventy  years  were  found  to  be  in  possession  of  an 
income  of  less  than  $26  a  year  and,  therefore,  entitled  to  a 
pension. 

This  is  only  true  of  Europe,  one  might  say.     But  in  the  pros- 


310  SOCIAL  INSURANCE 

perous  Australasian  colonies,  in  New  Zealand,  Victoria,  New 
South  Wales,  etc.,  the  granting  of  an  old-age  pension  imme- 
diately disclosed  a  very  large  number  of  aged  poor  varying 
from  25$  to  50$  of  the  total  number  of  persons  over  sixty-five 
years  of  age. 

What  is  the  situation  in  the  United  States?  Frankly,  no 
one  knows.  As  this  is  the  "  richest  country  in  the  world," 
problems  of  poverty  are  assumed  to  be  less  pressing.  The 
Twelfth  Census  tells  us  that  there  were,  in  1910,  6,216,674 
persons  over  the  age  of  sixty,  distributed  as  follows: 


60—64  2,267,150 

65—69  1,679,503 

70—74  1,113,728 

75—79  667,302 

80—84  321,754 

85—89  122,818 

90—94  33,473 

95—99  7,391 

100  and  over 3,555 


6,216,674 

What  proportion  of  this  enormous  army  suffers  from  eco- 
nomic distribution? 

Various  estimates  have  been  made.  The  first  socialist  con- 
gressman, Victor  L.  Berger,  in  a  speech  before  the  House, 
estimated  it  at  2,675,000.  He  included,  however,  persons  over 
sixty;  and  all  those  who  do  not  possess  revenue  of  $10  per 
week.  Moreover,  no  basis  for  the  estimate  was  given.  Mr. 
Lee  Welling  Squier  begins  his  recent  book,  specially  devoted 
to  this  problem,  with  the  statement. that  "  there  are  approxi- 
mately 1,250,000  former  wage-earners  who  have  reached  the 
age  of  sixty-five  years  in  want  and  are  now  supported  by 
charity,  public  or  private. ' ' 3 

The  estimate  is  based  upon  the  investigation  of  old-age 
pauperism  made  in  Massachusetts  by  the  special  ' '  commission 
on  old-age  pensions  "  of  that  state,  and  may  be  accepted  as 
fairly  reasonable  in  absence  of  better  data,  though  the  condi- 
tions in  one  state  may  not  be  sufficiently  characteristic  to  be 
applied  to  the  remaining  forty-seven  states. 

8  Old  Age  Dependency  in  the  United  States,  p.  3. 


THE  OLD  MAN'S  PROBLEM  311 

DEPENDENT  POPULATION  SIXTY-FIVE  YEARS  AND  OVER 

In  Massachusetts  In  the  United 

(determined  by  States  (esti- 

the  Mass.  Com-  mated  by  Mr. 

mission)  L.  W.  Squier) 

In  correctional  institutions  556  15,180 

In  insane  asylums  and  hospitals 1,961  53,544 

In  almshouses    3,480  95,128 

In  benevolent  homes    2,598  71,024 

By  public  outdoor  relief 3,075  83,996 

By  private  outdoor  relief  2,312  63,112 

By  United  States  pensions 27,230  744,188 


41,212  1,123,172 


The  statistical  method  by  means  of  which  the  table  was 
constructed  is  crude  enough.  Nevertheless,  the  statement  ap- 
pears rather  conservative.  There  can  be  no  doubt  that  the 
number  of  persons  receiving  private  outdoor  relief  is  largely 
underestimated.  It  is  admittedly  limited  to  relief  granted  by 
so-called  organized  charity  and  is  not  complete  even  as  far  as 
this  aspect  of  charitable  relief  is  concerned.  The  amount  of 
private  charity  granted  by  the  poor  no  less  than  by  the 
rich,  cannot  be  determined. 

But  there  is  a  more  important  criticism  to  be  offered  of  these 
figures  in  that  they  deal  only  with  assisted  old-age  destitution. 
Because  Massachusetts  has  a  stronger  sense  of  obligation 
toward  the  aged  poor  and  builds  more  almshouses  and  benevo- 
lent homes  than  does  a  Southern  state,  it  may  appear  that  the 
latter,  with  the  poor  white  trash  and  the  poorer  negro,  has  a 
smaller  proportion  of  aged  poor.  Subtracting  the  enumerated 
41,212  persons  from  the  total  number  of  persons  sixty-five  years 
or  over,  determined  for  Massachusetts  at  about  177,000,  the 
commission  arrives  at  135,788,  which  it  calls  "  non-dependent 
poor."  The  real  question  is:  what  proportion  of  these  135,- 
788  is  in  need  of  some  systematic  relief  or  provision  ?  Accept- 
ing Mr.  Squier 's  estimate  of  744,188  for  the  United  States  as 
approximately  correct,  the  real  question  is  what  proportion  of 
the  remaining  3,000,000  persons,  sixty-five  years  and  over,  is 
in  that  condition? 

Why  should  their  condition  be  a  problem  ?  it  may  be  asked. 
These  3,000,000  are  not  receiving*charitable  relief*and  yet  they 


312  SOCIAL  INSURANCE 

are  not  starving.  That  may  be  true.  Death  from  starvation 
is  not  a  very  common  occurrence  in  this  country  of  plenty, 
though  cases  may  happen  more  frequently  than  the  newspapers 
report,  and  though  premature  death  from  chronic  malnutrition 
may  be  much  more  frequent.  But  the  purpose  of  a  social 
policy  in  dealing  with  destitution  is  not  only  to  substitute 
for  private  and  public  charity,  is  not  only  to  prevent  starva- 
tion, not  only,  in  short,  to  prevent  the  extreme  of  pauperism, 
but  also  to  cure  or  prevent  poverty,  to  prevent  semi-starvation, 
to  raise  conditions  of  life,  standards  of  life  for  the  victims  as 
well  as  for  the  working  class  as  a  whole,  by  removing  the 
depressing  effect  upon  wages  and  the  standard  of  living  which 
a  large  contingent  of  pauperized  or  semi-pauperized  or  sim- 
ply destitute  individuals  must  necessarily  exercise. 

Most  aged  persons  are  not  actually  starving  to  death  in  the 
United  States,  even  when  not  in  receipt  of  organized  public 
or  private  charitable  relief.  Neither  were  they  presumably 
starving  in  Great  Britain,  France,  or  any  country  which  was 
forced  to  institute  old-age  pension  systems.  After  all,  some 
of  them  hold  on  with  grim  desperation  to  an  opportunity  to 
earn  a  wage.  Not  many  succeed,  to  be  sure.  To  return  to  the 
United  States  statistics.  There  were  in  1900  some  1,065,000 
men  sixty-five  years  or  over  engaged  in  gainful  occupations, 
out  of  a  total  of  1,555,000  of  that  age.  But  of  1,065,000  men 
nearly  one-half  were  farmers ;  and  professional  men,  bankers, 
brokers,  manufacturers,  corporation  officers,  and  mechants  con- 
stituted another  15$,  leaving  only  about  one-third  for  wage- 
earners.  The  question  is :  how  many  of  the  500,000  men  over 
sixty-five  years  of  age  and  not  employed  were  being  supported 
by  charity  or  private  aid;  how  many  of  the  1,400,000  women 
over  sixty-five  years  of  age  had  the  comforts  of  their  own 
homes,  and  how  many  were  burdens  to  a  workingman  's  family  ? 
And  how  many  of  the  500,000  or  600,000  wage-workers, 
sixty-five  years  or  older,  were  earning  enough  for  any  ap- 
proach to  a  physiological  standard  ?  Perhaps  nothing  short  of 
an  old-age  pension  system  will  bring  forth  exact  answers  to 
these  questions. 

This,  then,  is  briefly  the  situation  and  the  problem.  What 
are  the  remedies  ?  In  absence  of  any  systematic  social  method 
of  dealing  with  the  problem,  three  ways  are  open  to  the 
aged  workman  who  is  unable  to  find  employment,  or,  when 


THE  OLD  MAN'S  PROBLEM  313 

employed,  unable  to  earn  the  amount  needed  even  for  a  modest 
living : 

(1)  Savings;  (2)  dependence  upon  children  or  relatives, 
and  (3)  finally,  public  charity. 

It  is  not  necessary  to  repeat  the  general  arguments  made 
in  an  earlier  chapter  as  to  the  absence  of  a  continuous  surplus 
from  which  savings  could  be  made,  as  well  as  to  the  depressing 
effects  of  the  saving  habit  upon  the  standard  of  life.  But 
we  may  point  out,  at  this  juncture,  several  reasons  why  the 
remedy  of  individual  savings  is  even  less  applicable  to  the 
problem  of  old  age  than  that  of  sickness  or  unemployment. 

1.  The  amount  necessary  is  evidently  greater,  for  old  age  is 
not  a  brief  transitory  condition,  such  as  sickness  or  unem- 
ployment may  be.     It  would  require  a  continuous  saving  for 
a  great  many  years. 

2.  The  amount  necessary  is  uncertain.     There  is,  after  all, 
the  even  or  more  than  even  chance  of  early  death  before  old 
age  may  be  reached.     And  in  addition,  the  wage-worker  has 
no  means  at  all  to  know  how  much  he  would  have  to  save,  nor 
whether  his  savings  will  prove  sufficient. 

3.  It  is  the  final  emergency,  which  in  the  natural  course  of 
events  must  be  preceded  by  all  other  emergencies  of  a  work- 
ingman's  existence.     Inevitably  the  fund  of  savings  would 
have  to  be  used  to  meet  all  these  emergencies. 

4.  The  remoteness  of  the  emergency  would  prevent  neces- 
sary savings  at  a  time  when  such  savings  would  be  easiest, 
that  is,  in  earliest  years. 

5.  To  assume  that  under  these  conditions  all  workingmen 
could  save  sufficient  to  provide  them  against  old  age,  would  be 
to  disregard  all  real  conditions  of  the  wage-worker's  existence. 
Even  in  the  most  saving  of  our  states,  the  average  amounts 
held  per  depositor  in  the  savings  banks  are  ridiculously  small 
as  compared  to  the  amount  needed  for  a  sufficient  income  at 
old  age. 

6.  Finally,  special  saving  for  old  age  would  only  be  possible 
through  a  persistent,  systematic,  and  obstinate  disregard  of 
the  needs  of  the  workingman's  family,  which  would  make 
the  preaching  of  such  special  savings  a  decidedly  immoral 
force. 

That  in  thousands  of  cases  children  or  relatives  are  forced 
to  give  help  is  a  fact  too  well  known  to  be  disputed.  But  it 


314  SOCIAL  INSURANCE 

is  a  condition  which  usually  exists,  and  is  this  sort  of  relief 
always  possible,  and  if  possible,  desirable? 

The  strongest  emphasis  on  this  remedy  for  old-age  destitu- 
tion was  recently  made  by  the  Massachusetts  Commission  on 
Old-Age  Pensions.  The  secretary  of  the  Commission,  Pro- 
fessor F.  Spencer  Baldwin,  has  repeatedly  emphasized  the 
same  argument  in  articles  *  and  lectures.  It  was  used  as  one 
of  the  main  reasons  against  the  desirability  of  an  old-age 
pension  system  in  the  state  of  Massachusetts.  In  the  report  of 
the  Commission  it  is  stated  in  the  following  energetic  language : 

"The  disintegrating  effect  on  the  family.  A  non-contributory 
system  would  take  away,  in  part,  the  filial  obligation  for  the  support 
of  aged  parents  which  is  a  main  bond  of  family  solidarity.  It  would 
strike  at  one  of  the  forces  that  have  created  the  self-supporting,  self- 
respecting  American  family.  The  impairment  of  family  solidarity 
is  one  of  the  most  serious  consequences  to  be  apprehended."  4 

There  is  a  good,  old-fashioned,  atavistic  nobility  of  sentiment 
about  this  argument  which  will  greatly  please  all  good  men 
and  women  except  those  who  have  to  be  supported  by  their 
children,  and  those  who  have  to  support  their  parents  and 
also  their  own  families  on  a  wage-earner's  budget.  Scien- 
tifically the  argument  is  certainly  original,  because  it  assumes 
the  basis  of  the  family  to  be  the  support  of  the  older  generation 
by  the  younger,  while  it  has  always  been  fairly  well  agreed 
upon  by  all  students  of  society  that  the  shoe  was  on  the  other 
foot,  and  that  the  care  of  the  children  by  the  parents  was  the 
proper  function  of  family.  It  further  seems  to  assume  that 
we  love  our  burdens,  and  that  when  parents  cease  being  bur- 
dens the  children  cease  loving  them. 

It  assumes  that  the  standing  of  a  superannuated  parent  in 
a  family  is  in  an  inverse  proportion  to  the  amount  he  is  able 
to  contribute  to  the  family  budget.  It  is  an  appeal  to  an 
ideal  of  a  patriarchal  family  which  has  been  dead  for  a  cen- 
tury in  every  industrial  country,  and  which  really  never  had 
any  strong  hold  upon  American  life.  Of  course,  its  inap- 
plicability to  the  aged  single  man  or  the  aged  spinster  aunt 
will  be  evident.  For  it  certainly  cannot  be  claimed  that  the 
support  of  all  spinster  aunts  is  also  a  fundamental  principle 

4  Quarterly  Journal  of  Economics,  1910. 

5  Report  of  the  Massachusetts  Commission,  etc.,  p.  301. 


THE  OLD  MAN'S  PROBLEM  315 

of  American  family  solidarity.  Then,  again,  even  married 
people  may  not  have  any  children,  or  may  have  lost  them. 
One  must  remember  that  New  England  was  practising  race 
suicide  long  before  the  term  ever  became  popular.  As  a 
matter  of  fact,  the  very  data  gathered  by  the  Commission 
show  that  of  the  inmates  of  almshouses  and  benevolent  homes 
over  25$  were  single,  and  of  those  receiving  outdoor  relief  15$. 

Furthermore,  these  data  also  show  how  these  almshouses 
and  homes  do  break  down  the  solidarity  of  the  American 
family.  Of  their  inmates,  42$  had  adult  children  living  at 
time  of  entrance,  of  the  several  thousand  pensioners  receiving 
outdoor  relief  60$  had  adult  children  at  the  time  of  investiga- 
tion, and  59$  other  near  relatives.  It  is  really  surprising 
that  the  Commission  did  not  recommend  discontinuance  of  aid, 
both  institutional  and  outdoor,  because  of  the  demoralizing 
effect  upon  said  children  and  relatives. 

However,  the  same  table  which  conveys  the  information 
just  quoted  shows  that  while  there  were  children  in  some  60$, 
only  in  22$  were  they  able  to  render  aid ;  that  this  proportion 
was  only  some  10$  in  case  of  the  inmates  of  homes,  and  about 
50$  in  case  of  persons  receiving  outdoor  relief.  Moreover, 
it  appears  from  another  table  that  some  40$  were  receiving 
aid  from  children  or  relatives,  as  outdoor  relief  is  seldom 
bountiful. 

The  long  and  short  of  this  dependence  upon  family  solidarity 
is  just  this: 

1.  That  in  a  number  of  cases  the  aged  poor  are  single  in- 
dividuals. 

2.  Or  if  married  or  widowed,  have  no  children. 

3.  And  if  there  are  adult  children  or  other  relatives  they 
are  unable  to  render  any  aid,  or,  at  any  rate,  sufficient  aid. 

4.  Or  if  they  are  able,  may  not  be  willing  to  do  so. 
But,  nevertheless,  there  must  be  thousands  of  families  where 

children  are  either  unable  or  unwilling  to  render  aid  to  the 
superannuated  workers,  but  do  it,  nevertheless,  because  of  deep 
attachment  to  the  parents,  or  family  pride  revolting  against 
application  to  charity,  and  that  the  filial  obligation  is  thus  en- 
forced by  a  neglectful  society  with  the  effect  of  frequently 
depressing  a  standard  of  life  already  too  low,  or  forcing  the  old 
father  or  mother  to  eat  the  daily  bread  unwillingly  yielded,  in 
pain  and  humiliation,  or — preventing  the  formation  of  a  new 


316  SOCIAL  INSURANCE 

family  by  the  dutiful  son  or  daughter,  because  of  the  existing 
obligation  towards  the  ruins  of  the  old  family.  And  these 
are  the  results  of  trying  to  apply  an  eighteenth  century  ideal  to 
twentieth  century  conditions. 

In  view  of  the  failure  of  individual  methods,  such  as  private 
savings,  and  semi-social  methods,  such  as  family  solidarity,  to 
meet  the  problem  in  a  satisfactory  way,  the  burden,  or  a  very 
large  share  of  it,  is  thrown  upon  the  primitive  social  method 
of  poor-relief,  whether  public,  semi-public,  or  private,  by  in- 
dividual alms-giving.  That  charity — private  charity,  church 
charity,  and  public  poor-relief — has  done  a  good  deal  since 
time  immemorial  almost  no  one  will  deny.  But  it  is  just  as 
evident  that  this  cannot  be  considered  as  a  final  settlement 
of  the  problem  of  destitution.  Even  if  poor-relief  were  capable 
of  assuming  the  care  of  all  those  who  need  it,  it  would  be  far 
from  satisfactory.  In  Great  Britain,  where  the  aged  pauper 
population  is  proportionately  the  greatest  in  the  world,  the 
number  of  people  receiving  poor-relief  served  more  to  accen- 
tuate the  need  for  some  systematic  and  satisfactory  way,  than 
to  evidence  that  the  problem  had  been  solved.  For  it  is  ad- 
mitted by  modern  society  that  alms-giving  and  alms-receiving 
are  degrading  and  demoralizing,  and  that  alms-giving  should 
be  restricted  as  far  as  possible.  Modern  philanthropy  defends 
its  right  of  existence  on  the  plea  that  it  works  for  the  rehabili- 
tation of  the  individual  and  family ;  and  the  situation  of  the 
superannuated  worker  is  not  such  as  to  permit  of  rehabilita- 
tion. 

Poor-relief,  in  all  countries,  carries  with  it  a  social  stigma, 
and  in  most  a  definite  loss  of  the  prerogatives  of  free  citizen- 
ship. Outdoor  poor-relief  meets  the  constant  danger  of  malin- 
gery  and  exploitation,  and  institutional  poor-relief  is  grue- 
some to  every  one  except  the  senile,  the  invalid,  or  physically 
or  mentally  defective.  The  majority  of  people,  even  of  the 
poorest  class,  have  a  wholesome  antipathy  to  poor-relief,  and 
institutional  relief  is  considered  the  last  hope.  But  even 
aside  from  these  moral  aspects  of  poor-relief,  materially  it  has 
never  been  sufficient,  either  quantitatively,  or  qualitatively, 
to  solve  the  problem  of  old  age. 

Moreover,  poor-relief,  as  the  only  solution  of  the  problem, 
is  highly  unsatisfactory,  not  only  from  humanitarian  con- 
siderations, but  also  for  "  sound  business  reasons."  By  its 


THE  OLD  MAN'S  PROBLEM  317 

objectionable  character  to  the  wage-worker,  it  fails  to  furnish 
any  incentive  for  voluntary  retirement.  The  problem  of  old 
age  has  a  direct  bearing  upon  efficiency  in  production,  and, 
therefore,  upon  the  employer 's  profit.  The  reasons  forcing  the 
older  men  out  of  the  field  of  production  have  already  been 
mentioned.  In  practice,  the  elimination  of  the  aging  worker 
does  not  proceed  as  easily  and  smoothly  as  all  that.  Some 
employers  are  humane.  And  where  the  humane  employer's 
place  has  been  taken  by  a  corporation  ' '  without  a  body  to  be 
kicked,  without  a  soul  to  be  damned,"  the  actual  hiring  and 
firing  may  be  done  by  foremen,  privates  of  yesterday.  It  may 
be  easy  to  establish  rules  of  admission,  but  not  so  simple  to 
enforce  rules  about  wholesale  discharge.  Age  may  be  lied 
about,  and  the  decline  in  efficiency  may  only  be  noticeable 
to  the  nearest  workman.  Besides,  there  is  the  union  to  be 
reckoned  with,  and  no  establishment  can  preserve  any  degree 
of  efficiency  if  it  is  in  constant  turmoil  of  labor  conflicts. 
Thus,  the  need  of  some  systematic  provision  for  retirement 
adds  additional  weight  to  the  importance  of  the  old-age 
problem. 


CHAPTER  XX 

VOLUNTARY    PRIVATE    OLD-AGE    INSURANCE    IN 

EUROPE 

UNTIL  now  we  have  carefully  avoided  all  reference  to  actu- 
arial theory,  though  discussing  various  problems  of  insurance, 
because  actuarial  facts  are  seldom  intelligible  and  never  inter- 
esting to  the  lay  reader.  But  in  dealing  with  the  problem  of 
old-age  insurance,  some  understanding  of  the  actuarial  prin- 
ciples becomes  imperative,  because  their  neglect  has  led  many 
useful  and  well-meant  experiments  to  grief. 

Old-age  insurance  differs  from  the  other  simpler  branches 
in  that  it  is  based  upon  an  accumulation  of  funds  even  more 
than  distribution  of  losses,  and  is  intimately  connected  with 
the  foundations  of  actuarial  science, — problems  of  death-rate, 
average  longevity,  and  life  expectancy.  It  will  be  necessary, 
therefore,  to  present  the  basic  facts  underlying  old-age  insur- 
ance, though  this  will  be  done  in  as  elementary  and  non- 
technical language  as  possible.  Let  us  assume  the  case  of 
Richard  Roe,  an  energetic,  prosperous,  and  sensible  young 
man  of  thirty,  unmarried  and  without  any  financial  obliga- 
tions toward  any  one.  Mr.  Roe  is  earning  a  good  income  and 
wants  to  enjoy  all  the  advantages  thereof.  Being  an  abso- 
lutely unattached  individual,  he  does  not  aspire  to  leave  a  for- 
tune at  his  death,  nor  does  even  life  insurance  appeal  to  him. 
If  he  is  a  careful  man  he  probably  carries  an  accident  and 
health  policy,  which,  in  virtue  of  the  principle  of  distribution 
of  losses,  will  for  a  small  consideration  guarantee  him  his 
regular  income,  or  nearly  that,  in  case  of  accidental  injury  or 
sickness.  4 

But  there  is  another  contingency — that  of  old  age,  and  conse- 
quent disability — confronting  Mr.  Roe.  Besides  he  may  think 
that  any  man  should  retire  at  the  age  of  seventy,  sixty-five, 
or  even  sixty.  Of  course,  Mr.  Roe  is  not  at  all  sure  that  this 
contingency  will  ever  arise.  He  may  die  before  arriving  at  the 
age  of  sixty,  as  thousands  of  people  do.  To  save  money  for 

318 


VOLUNTARY  PRIVATE  OLD-AGE  INSURANCE  319 

old  age  may  be  just  wasting  good  money — for  which  so  much 
present  certain  enjoyment  could  be  had.  Besides,  Mr.  Roe, 
even  though  a  good  business  man,  really  could  not  tell  how 
much  money  he  should  have  to  save.  He  may  live  to  sixty-five, 
seventy,  or  even  ninety  years  of  age — one  out  of  every  100 
men  at  thirty  really  does  live  to  be  ninety  years  old.  An 
insurance  policy  for  an  annuity  (or  pension)  to  begin  at  the 
age  of,  let  us  say,  sixty-five,  and  to  last  till  death  will  easily 
solve  all  these  vexatious  problems  for  Mr.  Roe.  While  every- 
thing is  doubt  and  uncertainty  for  him,  for  the  insurance  com- 
pany that  undertakes  the  contract,  everything  on  the  contrary 
is  order,  law,  and  mathematics.  Mr.  Roe  will  not  have  to  save 
too  much.  He  will  have  to  lay  aside  only  as  much  as  is  neces- 
sary. In  addition,  there  would  be  the  advantage  of  enforced 
regular  periodical  savings,  which  Mr.  Roe  otherwise,  in  the 
pursuit  of  the  good  things  of  life,  might  forget  to  make.  There 
would  be  the  safety  of  funds  which  otherwise  might  be  lost 
through  bad  investments,  and  also  the  advantage  of  compound 
interest,  though  that,  of  course,  is  applicable  to  individual 
savings  as  well. 

How  much,  then,  will  Mr.  Roe  have  to  lay  aside  each  year 
to  assure  himself  an  annuity,  or  pension,  of  $1,000  a  year 
beginning  with  sixty-five  ?  The  insurance  company  will  quote 
him  a  "  premium.'7  This  premium  will  be  "  loaded, "  i.e.,  in 
its  computation  the  administrative  expenses  of  the  company 
will  be  represented,  and  its  profits,  and  the  commission  of  the 
agent  who  may  have  had  a  hand  in  convincing  him  of  the 
advantages  of  insurance  over  individual  savings — but  all  this 
loading,  in  addition  to  the  "  pure  premium  "  or  actual  cost, 
we  need  not  consider.  On  the  day  Mr.  Roe  arrives  at  the  age 
of  sixty-five,  the  insurance  company  must  pay  him  $1,000 
and  continue  paying  him  $1,000  each  year  as  long  as  he  lives. 
It  must  have  the  money  on  hand  from  which  to  make  these 
payments,  otherwise  it  is  insolvent,  and  it  must  know,  approxi- 
mately at  least,  how  much  money  it  will  take.  % 

The  insurance  company  does  know  this,  because  of  the  ex- 
istence of  mortality  tables.  It  cannot  tell,  even  when  Mr.  Roe 
is  sixty-five,  and  still  less  at  the  time  of  his  insurance,  when 
he  is  only  thirty,  how  many  payments,  if  any,  it  will  have  to 
make  in  his  individual  case.  But  it  does  know  that  at  the  age 
of  sixty-five  his  expectancy  of  life  is  a  little  over  eleven  years ; 


320  SOCIAL  INSURANCE 

it  also  knows  that  at  the  age  of  sixty-five,  forty  will  die  out  of 
1,000  within  the  year,  43  of  the  surviving  within  the  next 
year,  47  of  the  then  surviving  within  the  third  year,  and  so 
forth.  So,  assuming  that  there  are  1,000  Roes  surviving,  it 
will  have  to  make  1,000  payments  the  first  year,  960  payments 
the  second  year,  917  during  the  third  year,  532  payments  in 
the  tenth  year,  because  only  that  many  will  survive  at  the 
age  of  seventy-five — only  26  payments  in  the  twentieth  year,  as 
976  Roes  are  supposed  to  have  died  by  that  time,  and  so  on, 
until  the  ninety-sixth  year,  when,  according  to  the  American 
Experience  Table,  no  more  survive,  the  obligations  will  cease. 
All  the  means  to  make  these  payments  must  be  on  hand  at  the 
time  the  insurance  premiums  cease.  But  though  11,597  pay- 
ments will  have  to  be  made  in  all  on  1,000  surviving  lives,  it 
does  not  follow  that  $11,597,000  in  cash  must  be  laid  aside  by 
the  insurance  company,  because  the  principle  of  compound  in- 
terest comes  into  play.  Assuming  a  4  1-2$  rate  of  interest — 
$1,000  which  must  be  paid  one  year  from  now,  is  worth  only 
$956.93,  because  that  amount  placed  for  a  year  at  interest 
will  produce  exactly  $1,000.  And  at  the  same  rate  of  interest, 
a  payment  of  $1,000  due  in  twenty  years,  is  only  worth 
$396.78,  and  so  on.  Thus,  the  present  value  of  the  11,597 
payments  will  be  considerably  less  than  $11,597,000 — let  us 
assume,  $7,500,000;  therefore,  for  each  individual  Mr.  Roe, 
$7,500  will  be  necessary,  and  sufficient,  though  our  particular 
Mr.  Roe  may  live  to  be  all  the  ninety-six  years  old  and  receive 
32  payments  at  $1,000  each. 

To  make  this  accumulation  of  $7,500  possible  in  thirty-five 
years  between  thirty  and  sixty-five,  Mr.  Roe  would  have  to 
make  only  comparatively  small  payments.  Again  the  wonderful 
influence  of  compound  interest  comes  into  play.  If  the  present 
value  of  $1,000  to  be  paid  thirty-five  years  later  (at  4  1-2$) 
is  only  $205.03,  it  also  means  that  $100  deposited  in  1912 
will  be  worth  $487.73  in  1947.  And  in  addition,  mortality 
comes  to  the  -rescue  of  the  surviving  Mr.  Roe.  In  order  that 
1,000  Roes  should  survive  at  the  age  of  sixty-five,  1,732  must 
insure  at  thirty,  or  inversely,  if  1,000  insure,  only  577  will  sur- 
vive. Some  will  make  only  one  payment,  and  others  many 
more,  up  to  the  full  35  without  getting  any  pension,  and  those 
who  survive  profit  thereby,  in  that  their  premium  must  be 
correspondingly  smaller.  In  fact,  Mr.  Roe  will  have  to  pay 


VOLUNTARY  PRIVATE  OLD-AGE  INSURANCE    321 

about  $60  per  annum  in  order  to  guarantee  himself  the  pen- 
sion of  $1,000  from  sixty-five  years  on.  This  much  for  the 
meager  effect  of  the  combined  forces  of  a  mortality  table  and 
the  table  of  compound  interest.  The  illustration  shows  all  the 
mathematical  advantages  of  old-age  insurance,  and  Mr.  Roe 
would  be  a  fool  not  to  take  advantage  of  these  forces,  for  he 
can  easily  dispense  with  the  paltry  amount  of  premium  with- 
out much  inconvenience. 

It  goes  without  saying,  old-age  insurance  is  a  much  more 
preferable  way  of  providing  for  old  age  than  individual  sav- 
ings. The  middle  classes  in  Europe  do  avail  themselves  of  this 
form  of  voluntary  insurance,  especially  in  France,  because  of 
the  popularity  of  early  retirement.  It  is  much  less  customary 
in  the  United  States  for  several  reasons — because  the  insurance 
companies  compute  their  premiums  at  3$  or  3  1-2$,  and  a 
business  man  may  reasonably  expect  to  obtain  4$,  or  even  5$, 
without  much  risk ;  because  active  Americans  do  not  look  for- 
ward to  early  retirement;  because,  finally,  insurance  com- 
panies for  good  reasons  do  not  try  to  popularize  this  form  of 
insurance,  which  is  just  the  opposite  of  life  insurance.  For, 
when  actual  mortality  falls  short  of  the  expected  mortality, 
the  insuring  company  is  a  gainer  thereby,  having  less  to  pay 
in  death-benefits ;  but  when  the  same  thing  occurs  among  an- 
nuity or  pension  receivers,  then  every  additional  year  of  life 
means  an  additional  payment  to  the  pensioner. 

But,  as  far  as  the  working  class  is  concerned,  it  failed  to 
avail  itself  of  all  these  advantages.  Many  other  more  pressing 
needs  always  stared  in  the  wage- worker's  face,  and  the  con- 
tingency of  old  age  was  always  a  remote  contingency. 

Instead  the  wage-workers  endeavored  to  apply  the  principle 
of  solidarity  and  of  the  distribution  of  loss  in  the  only  way 
that  was  known  to  them — through  mutual  aid,  familiar- 
ized by  its  successful  application  to  the  much  simpler 
problem  of  sickness  insurance.  The  workingmen  had  their 
friendly  societies  or  mutual  aid  societies  or  unions.  Their 
function  was  never  very  strictly  defined  or  limited.  The  tran- 
sition was  easy  from  benefits  for  temporary  sickness  to  benefits 
for  chronic  invalidity,  and  further  to  old-age  benefits.  For, 
after  all,  where  shall  the  strict  line  be  drawn  between  a  tempo- 
rary and  a  permanent  disease,  between  invalidity  and  old  age  ? 
Especially  since  the  initial  spirit  of  friendly  societies  was 


322  SOCIAL  INSURANCE 

rather  mutual  charity  than  insurance?  In  this  way,  many 
of  these  organizations,  especially  in  the  second  half  of  the 
nineteenth  century,  began  to  provide  for  old-age  benefits. 
Perhaps  the  greatest  development  of  this  form  of  old-age  pro- 
vision may  be  found  in  France,  where,  in  1904,  as  many  as 
1,420  societies  were  granting  such  aid,  of  a  total  of  over 
18,000  mutual  benefit  societies,  and  the  total  number  of  per- 
sons pensioned  because  of  old  age  or  invalidity  during  one 
year  reached  nearly  15,000.  In  Great  Britain,  also,  a  few 
friendly  societies  provide  old-age  pensions,  or  superannuation 
benefits,  though  in  the  total  activity  of  the  friendly  societies, 
they  do  not  represent  a  very  important  share,  and  in  addition 
some  of  the  stronger  British  trade  unions,  famous  for  their 
development  of  benefit  features,  have,  during  the  last  twenty 
years,  developed  their  old-age  benefits.  Thus,  within  the  ten 
years  1898-1907,  the  total  amount  of  old-age  benefits  paid  out 
annually  by  one  hundred  large  trade  unions  has  increased 
from  $773,000  to  $1,595,000,  i.e.,  more  than  doubled.  But 
here,  too,  other  benefits  were  considered  more  important,  for 
instance,  unemployment,  sickness,  and  death,  so  that  super- 
annuation benefits  did  not  claim  more  than  15$  of  the  total 
amount  spent.  While  the  total  membership  of  the  British 
trade  unions  was  estimated  towards  the  close  of  the  first  decade 
at  some  2,500,000,  the  32  unions  which  were  known  to  grant 
superannuation  benefits  had  a  membership  of  less  than  half 
a  million.  In  Belgium,  out  of  a  total  of  7,945  mutual  benefit 
societies,  4,851  were  providing  old-age  insurance,  though  as 
we  shall  presently  see,  in  that  country  the  condition  was 
primarily  due  to  another  factor,  that  of  a  state  subsidy  which 
has  greatly  stimulated  mutual  old-age  insurance.  In  Italy, 
out  of  6,535  mutual  aid  societies,  1,616,  or  nearly  25$,  were 
granting  old-age  pensions,  and  1,049  single  old-age  benefits. 
Similar  efforts  were  made  by  voluntary  organizations  of  work- 
men in  all  civilized  countries. 

But  notwithstanding  the  imposing  figures,  the  total  amount 
of  old-age  insurance,  if  it  might  be  termed  thus,  carried  by 
mutual  benefit  societies  and  trade  unions  is  very  limited.  And 
quite  necessarily  so.  The  mutual  benefit  societies  were 
gradually  forced  to  grant  old-age  relief  simply  as  an  exten- 
sion of  the  sickness-insurance  system.  It  did  not  develop  as 
a  problem  in  scientific  insurance  with  the  necessary  prepara- 


VOLUNTARY  PRIVATE  OLD-AGE  INSURANCE    323 

tion  of  actuarial  data.  For  with  the  possible  exception  of  a 
few  very  large  British  friendly  societies,  most  mutual  bene- 
fit societies  possessed  neither  the  necessary  knowledge  nor  the 
necessary  means  to  conduct  insurance  on  strict  actuarial  prin- 
ciples. Whether  as  a  result  of  ignorance  or  of  poverty,  many 
of  these  voluntary  societies  in  facing  the  problem  of  age-relief, 
pursued  collectively  the  same  course  which  the  average  work- 
man is  forced  to  pursue  individually,  i.e.,  they  met  the  situa- 
tion only  as  it  arose,  and  raised  only  the  funds  necessary 
to  meet  the  current  obligations.  That  was  true  mutual  aid,  the 
younger  generations  granting  aid  to  the  older  members,  with 
the  expectation  of  receiving  their  aid  from  the  younger  genera- 
tions in  their  old  age. 

In  other  words,  it  might  be  said  that  the  mutual  benefit 
societies  recognized  the  principle  of  distribution  of  losses,  as 
they  had  become  familiar  in  accident  and  sickness  insurance, 
and  thought  it  possible  to  meet  the  problem  in  this  way.  They 
were  not  aware  of  the  grim  necessity  of  accumulating  funds 
in  dealing  with  old-age  relief. 

But,  as  Mr.  Roe's  story  may  have  shown  already,  there  is 
a  very  essential  difference  between  these  lines  of  insurance. 
In  accident  and  sick-insurance  we  are  dealing  with  a  certain 
constant  average  which  must  be  provided  against.  A  certain 
.  number  of  people  get  hurt  or  sick  each  year.  But  a  certain 
V  number  of  persons  will  not  get  old  each  year  if  we  start  with  a 
body  of  young  men.  On  the  contrary,  they  will  get  old  only 
after  a  considerable  period  of  time,  and  payments  must  be 
made  for  a  long  time  before  any  pensions  become  due.  If  they 
do,  they  will  eventually  derive  the  advantage  of  their  pay- 
ments, of  accrued  interest  and  also  of  the  mortality  tables. 
But  when  an  old-age  benefit  is  decreed  or  a  system  of  old- 
age  benefits  is  instituted  for  immediate  payments  without  any 
preliminary  accumulation  of  funds  to  meet  the  cost,  a  definite 
burden  is  immediately  placed  upon  those  whose  membership 
dues  must  meet  the  cost  of  the  pension. 

Not  only  that,  but  the  moment  an  old-age  benefit  system 
is  created,  a  very  large  financial  obligation  is  created  with  it, 
the  exact  amount  of  which  may  be  quite  unknown  to  the  mem- 
bers of  the  society.  In  the  illustration  of  Mr.  Roe  we  have 
used,  we  have  assumed  that  he  was  to  pay  his  premiums 
from  thirty  to  sixty -five.  If  he  is  to  begin  his  old-age  insur- 


324  SOCIAL  INSURANCE 

ance  five  years  later,  his  premium  must  be  higher,  for  he  has 
five  less  payments  to  make,  and  less  time  for  these  payments 
to  draw  compound  interest.  Yet  in  a  mutual  benefit  society 
or  a  union,  when  a  superannuation  benefit  system  is  decided 
upon,  no  distinction  is  made  between  members  as  to  age. 
A  fine  feeling  of  fellowship  usually  is  the  decisive  factor. 
But  a  feeling  of  fellowship  cannot  change  the  inexorable  laws 
of  arithmetic.  The  inevitable  usually  happens.  The  amount 
of  contributions  necessary  to  meet  the  cost  of  the  old-age 
benefits  will  evidently  depend  upon  the  proportion  of  old  men 
to  the  entire  membership.  As  with  every  year  the  average 
age  of  the  members  increases,  the  proportion  of  old  men  natu- 
rally rises  and  the  necessary  contributions  must  rise  with 
them,  unless  there  is  a  sufficient  influx  of  new  membership  to 
offset  the  change. 

What  is  the  inevitable  result  of  such  development?  That 
as  the  burden  of  supporting  the  older  members  becomes 
heavier,  it  becomes  more  and  more  difficult  to  attract  new 
young  members  to  the  fund,  and  many  drop  out,  while  the 
older  members  hold  on  because  they  are  coming  nearer  to  the 
pension,  and  a  situation  like  this  must  lead,  and  very  often 
has  led,  to  the  entire  collapse  of  many  friendly  societies.  It 
is  for  this  reason  that  the  granting  of  old-age  pensions  by 
friendly  societies  has,  in  many  countries,  been  restricted  or 
put  under  strict  control  or  even  prohibited. 

And  as  these  conditions  have  become  generally  known,  the 
enthusiasm  for  superannuation  benefits  in  friendly  societies 
and  trade  unions  has  subsided. 

The  very  modest  development  of  these  voluntary  old-age 
insurance  systems  through  the  unaided  efforts  of  the  work- 
men themselves  left  the  problem  of  superannuation  and  retire- 
ment unsolved.  The  pressure  of  this  problem  upon  industry 
gave  rise  to  another  movement  for  private  old-age  insurance, 
that  of  establishment  funds  and  industrial  old-age  pension 
funds.  The  characteristic  feature  of  these  is  not  only  that 
they  unite  into  one  organization  employees  of  one  establishment 
or  correlated  establishments  of  one  industry,  but  that  they  are 
often  compulsory  in  practice  as  far  as  the  employees  of  that 
establishment  and  industry  are  concerned,  and  that  they,  in 
the  majority  of  cases  receive  a  more  or  less  substantial  subsidy 
from  the  employer.  They  are  also  known  often  as  private  pen- 


VOLUNTARY  PRIVATE  OLD-AGE  INSURANCE    325 

sion  funds.  They  are  features  of  large  industrial  establish- 
ments or  corporations  only.  They  deserve  special  emphasis 
because  of  the  tendency  of  some  students  of  social  insurance  to 
consider  them  the  best  solution  of  the  old-age  problem. 

There  are  certain  advantages  in  the  old-age  voluntary  insur- 
ance of  the  establishment  funds  as  compared  with  the  mutual 
benefit  societies,  but  also  certain  serious  objections  which  must 
be  carefully  considered. 

First  among  the  advantages  must  be  considered  the  fi- 
nancial assistance  from  the  employer.  Without  some  such 
assistance  it  is  questionable  whether  one  can  speak  of  true 
establishment  funds,  and  especially  is  this  true  of  old-age 
funds.  The  great  importance  of  such  a  subsidy  in  making  old- 
age  insurance  feasible  follows  from  general  principles  of 
social  insurance.  In  practice,  however,  there  are  all  possible 
degrees  of  financial  assistance,  when  the  establishment  funds 
are  purely  voluntary  organizations.  Contributions  from  both 
sides  are  the  rule  in  Europe,  but  their  respective  amounts  may 
vary.  In  some  places  the  employer's  contribution  is  extremely 
small,  and  simply  acts  as  a  subterfuge  for  leaving  in  his  hands 
the  entire  administration  of  the  fund.  In  many  funds  con- 
tributions are  equally  made  by  both  parties  to  the  wage- 
contract,  or  again  there  may  be  a  definite  contribution  from 
the  employee,  while  the  employer  assumes  the  remaining  cost 
of  the  pension  promised.  And  in  the  other  extreme,  we  may 
find  pure  service  pensions,  where  the  whole  cost  is  met  by  the 
employer. 

A  second  advantage  is  a  higher  rate  of  old-age  benefits, 
not  only  because  the  employer's  contributions  make  it  possible, 
but  because  the  scale  of  benefits  must  be  fairly  high  to  make 
voluntary  retirement  attractive,  and  rob  the  enforced  retire- 
ment of  its  objectionable  features.  Unless  these  conditions  ob- 
tain to  some  degree,  the  pension  fund  fails  of  its  purpose,  and 
the  employer's  contribution  is  wasted. 

A  third  is  security  from  financial  ruin.  Better  actuarial 
preparation  may  be  made  by  a  large  employer.  As  member- 
ship is  often  compulsory,  there  is  less  danger  of  failure  because 
of  lack  of  new  blood  or  retirement  of  younger  members  as  soon 
as  the  average  age  begins  to  rise.  Moreover,  in  establishment 
funds  the  scale  of  benefits  is  usually  the  definite  thing;  the 
contributions  are  adjusted  to  them ;  and  if  they  are  not  suffi- 


326  SOCIAL  INSURANCE 

cient,  the  employer  is  often  forced  to  meet  the  deficit,  either 
voluntarily  or  through  pressure  from  the  body  of  workingmen, 
who  consider  the  proposed  benefit  a  promise  to  be  kept.  As  a 
matter  of  fact,  that  was  the  history  of  many  establishment  and 
industry  funds:  a  constant  increase  of  the  share  of  the  em- 
ployer as  the  actuarial  basis  of  the  funds  failed  to  work  itself 
out. 

Perhaps  a  few  facts  and  figures  from  the  experience  of  the 
railroad  pension  funds  will  illustrate  the  point.  In  France, 
voluntary  railroad  pension  funds  have  existed  since  the  fifties, 
and  they  usually  began  with  a  promise  of  a  definite  scale  of 
pensions,  and  with  equal  and  small  contributions  from  the 
employer  and  employees.  In  all  of  them  the  contributions 
proved  insufficient,  and  the  deficit  was  met  by  increased  con- 
tributions from  the  employers.  Thus,  in  one  railroad  fund  the 
employer's  contribution  was  increased  from  40  of  the  wages 
in  1869,  to  50  in  1884,  to  80  in  1892,  and  120  in  1895,  while 
the  employees'  contributions  remain  unchanged.  In  another 
railroad  pension  fund,  the  contributions  of  the  railroad  com- 
pany in  1865  were  Ijf,  in  1878  20,  in  1881  5  1-20,  in  1882 
6  1-20,  in  1888  8  1-20,  and  since  1891  150,  while  the  employees' 
contributions  remained  unchanged  at  30.  The  identical  ex- 
perience was  observed  in  the  railroad  pension  funds  of  Italy, 
Belgium,  Russia,  and  other  countries.  Thus  security,  univer- 
sality, comparative  cheapness,  and  liberality  of  provision  are 
the  special  advantages  of  these  funds. 

But  there  have  been  pointed  out  many  objections  and  short- 
comings of  this  solution  of  the  old-age  problem. 

First,  their  limitations;  they  are  not  at  all  applicable  to 
smaller  establishments,  and,  after  all,  depend  upon  the  good 
will  of  the  employer.  In  France,  where  as  much  faith  was 
put  in  these  institutions  as  in  this  country  at  present,  an 
investigation  in  1895  showed  that  outside  of  railroads,  min- 
ing, and  governmental  establishments,  less  than  50  of  the 
industrial  workers  were  provided  for  by  these  establishment 
funds.  It  is  questionable  whether  a  similar  investigation  in 
the  United  States  at  present,  within  the  same  industrial  limits, 
i.e.,  outside  of  the  railroads,  would  show  even  as  high  a  per- 
centage. 

Second,  their  security  is  far  from  absolute,  unless  some 
efficient  government  control  is  provided.  Employers  who  are 


VOLUNTARY  PRIVATE  OLD-AGE  INSURANCE    327 

in  charge  of  these  funds  may  be  dishonest,  and  even  honest 
employers  may  fail.  Moreover,  the  policy  of  the  establishment 
may  change,  and  the  promised  pension  may.  not  materialize. 
There  is  no  legal  guarantee  that,  for  instance,  the  Pennsylvania 
R.  R.,  one  of  the  most  liberal  roads  in  pension  matters,  will 
continue  to  pay  the  pensions  it  pays  to-day.  It  is  entirely  a 
matter  of  good  will.  Here  is  a  special  problem  requiring  a 
scientific  remedy  of  state  control  for  these  establishment  funds. 
As  the  pensions  promised  under  certain  conditions  are  in 
the  nature  of  a  contingent  and  deferred  wage-payment,  they 
are  an  assumed  obligation,  which  must  be  met.  In  France, 
e.g.,  they  are  regulated  by  a  special  act  passed  fifteen  years 
ago,  which  is  planned  to  meet  just  this  situation  by  state 
supervision  and  guarantee. 

Third,  their  inapplicability  in  case  of  a  shifting  employment, 
and  resulting  interference  with  a  healthy  and  normal  mobility 
of  labor.  It  is  evidently  unjust  that  in  resignation  or  dis- 
charge, acquired  rights  be  lost,  and  yet  they  must  be  based 
upon  length  of  continuous  service. 

Fourth,  the  indirect  incidence  of  the  cost  of  these  pensions 
upon  the  employees.  This  is  somewhat  abstractly  stated, 
and  may  seem  purely  hypothetical.  But  in  any  case  it  is  in 
perfect  accord  with  both  economic  theory  and  practice.  What 
is  meant  by  ' '  incidence  ' '  is  just  this :  When  pensions  are 
given  by  some  employers  and  not  by  others,  they  constitute 
an  important  difference  in  the  financial  conditions  of  the 
employment  contract,  and  must  be  considered  as  a  deferred 
wage.  There  will,  therefore,  be  a  tendency  to  discount  them 
in  the  actual  wage-scale.  Either  in  entering  the  service  or 
leaving  it  for  better  paid  employment,  account  will  be  taken 
(inaccurately,  to  be  sure)  of  the  present  value  of  the  pension 
rights,  so  that  the  contribution  of  the  employer  will  be  largely 
nominal  only. 

But,  perhaps,  the  greatest  objection  to  them  from  the  work- 
er's point  of  view,  at  least  in  their  present  condition  of  legal 
irresponsibility,  is  the  obstruction  they  place  in  the  way  of 
labor 's  struggle  for  improving  the  wage-contract.  The  knowl- 
edge of  rights  acquired  under  a  pension  system  through  many 
years  of  service,  the  fear  of  losing  these  rights  through  leaving 
the  service,  must  materially  reduce  tire  old -employee's  powers 
of  collective  bargaining.  In  fact,  it  is  often  charged  by  the 


328  SOCIAL  INSURANCE 

workers  that  this  is  the  primary  object  of  the  employers' 
pension  funds,  and  though  these  statements  may  be  exagger- 
ated, it  is  not  improbable  that  the  entire  cost  of  a  pension 
scheme  is  but  a  cheap  price  for  this  assurance  against  the 
likelihood  of  strikes. 

Of  course,  many  of  these  drawbacks  may  be  cured  when 
establishment  funds  are  merged  into  systems  of  industry 
funds,  with  right  of  free  transfer  from  one  fund  to  another 
fund  in  the  same  industry,  and  even  certain  provisions  for 
leaving  an  industry  prematurely.  For,  naturally,  workers 
usually  move  within  spheres  of  defined  industry.  Such  guar- 
antees can  be  created  efficiently  only  by  a  legislative  act.  And 
perhaps  the  French  act  of  1909,  creating  a  compulsory  system 
of  old-age  pensions  for  railroads  (most  of  which  have  had 
voluntary  pension  systems  for  fifty  years),  with  a  minimum 
scale  of  benefits,  but  leaving  the  actual  working  out  of  details 
little  disturbed,  is  a  fair  illustration  of  this  tendency. 


CHAPTER  XXI 

SUBSIDIZED  VOLUNTARY  STATE  INSURANCE 
AGAINST  OLD  AGE 

THE  basic  principle  of  social  insurance — the  necessity  of 
active  constructive  interference  by  the  state — is  perhaps  best 
illustrated  in  the  case  of  Old- Age  Insurance.  The  problem  is 
simply  too  big  to  be  handled  by  the  wage-workers  unaided, 
either  individually  or  collectively.  Hence,  the  very  limited  re- 
sults of  such  co-operative  efforts  indicated  in  preceding 
pages.  The  necessity  for  national  action  has  been  admitted  by 
the  modern  state  for  a  long  time.  As  a  matter  of  priority  it  is 
interesting  to  note  that  the  first  timid  steps  in  what  we  now 
call  social  insurance  were  made  in  several  European  coun- 
tries in  connection  with  old  age. 

From  the  days  of  the  great  French  Revolution  has  the 
problem  of  old  age  and  various  methods  of  meeting  it  been 
discussed  in  France.  Since  the  early  fifties  of  the  last  century, 
at  least  in  three  states, — France,  Belgium,  and  Italy, — some 
systematic  efforts  were  made  by  the  state  to  come  to  help. 

Naturally  enough,  the  first  efforts  were  not  very  revolu- 
tionary. The  whole  concept  of  social  insurance  was  as  yet 
unborn.  Compulsion  was  even  unthought  of.  The  limit  of  the 
possible  state  aid  to  old-age  insurance  was  assumed  to  be 
regulation,  encouragement,  stimulation  of  voluntary  insur- 
ance. Perhaps  France  was  the  state  to  open  the  era  of  direct 
state  insurance  by  organizing,  in  1850,  its  National  Old- Age 
Insurance  Institution.  Belgium  soon  followed,  and  after  a 
very  much  longer  interval  (in  1898)  Italy,  and,  finally,  Spain 
in  1908.  Thus,  curiously  enough,  state  institutions  for  volun- 
tary old-age  insurance  appear  almost  like  a  racial  institution. 
They  served  for  many  years  as  the  basis  for  a  heated  dispute 
concerning  the  comparative  advantages  of  the  Latin  principle 
of  free  voluntary  insurance  and  the  Teutonic  principle  of  com- 
pulsion. 

As  the  French  National  Old- Age  Pension  Fund  (La  Caisse 

329 


330  SOCIAL  INSURANCE 

Nationale  des  Retraites  pour  la  Vieillesse)  offers  an  experience 
of  over  sixty  years  of  continuous  operation,  the  principles  of 
optional  state  old-age  insurance  may  best  be  learned  by  means 
of  a  study  of  this  institution. 

The  purposes  of  this  as  well  as  other  similar  institutions 
may  be  stated  under  the  following  four  heads: 

1.  To  encourage  individual  provision  for  old  age  by  provid- 
ing a  safe  institution. 

2.  To  put  old-age  pension  insurance  upon  sound  actuarial 
principles. 

3.  To  reduce  the  cost  to  its  lowest  possible  level  by  eliminat- 
ing all  other  elements  besides  that  of  pure  premium. 

4.  To  further  aid  and  stimulate  voluntary  insurance  by 
more  direct  subsidies. 

The  principle  of  "  safety  "  is  self-evident.  It  is  the  same 
principle  which  was  argued  so  persistently  in  the  United 
States  recently  in  connection  with  demands  for  Postal  Savings 
Banks.  Not  only  was  the  increased  safety  of  a  government 
guarantee  desirable  in  itself,  as  private  savings  banks  were 
known  to  fail,  but  because,  it  was  argued,  the  prestige  of 
safety  attaching  to  a  government  institution  will  influence  the 
more  ignorant  to  save,  many  of  whom  heretofore,  in  their  igno- 
rance, permitted  this  lack  of  confidence  to  interfere  with  their 
saving  habits. 

The  principle  of  actuarial  soundness  was  already  referred 
to.  It  was  shown  that  neither  in  the  mutual  benefit  societies 
nor  establishment  funds  was  such  actuarial  soundness  often 
present.  Both  benefits  and  contributions  are  determined  in 
advance,  according  to  some  arbitrary  rule :  in  case  of  benefits, 
a  rule  of  a  necessary  minimum,  and  in  case  of  contributions, 
a  rule  of  permissible  maximum,  both  of  which  are  not  actuarial 
principles  by  any  means.  If  the  relation  does  not  work  out, 
one  of  the  following  things  may  happen:  (1)  Insolvency;  (2) 
decrease  of  benefits,  or  (3)  increase  of  contributions.  We 
have  seen  that  in  establishment  funds,  where  some  moral 
or  legal  responsibility  of  the  employer  exists  or  may  be  as- 
sumed, an  increase  of  contributions  usually  occurs.  But  vol- 
untary state  insurance  in  the  beginning  was  expected  to  be  self- 
supporting  and,  therefore,  a  strict  adherence  to  the  actuarial 
principles  was  necessary.  Therefore,  no  definite  benefits  were 
promised  and  no  definite  contributions  exacted.  The  amount 


STATE  INSURANCE  AGAINST  OLD  AGE       331 

of  old-age  pensions  obtained  depended  upon  the  free  will  of 
the  insured.  It  was  evidently  a  modified  form  of  individ- 
ual saving — modified  by  the  actuarial  rules  concerning  an- 
nuities. 

In  the  illustration  of  Mr.  Richard  Roe,  used  in  a  preceding 
page,  it  was  shown  in  a  general  way  how  the  necessary  amount 
of  premium  must  be  computed  to  provide  an  individual  with 
a  definite  pension  to  begin  at  a  certain  time.  In  that  problem, 
partly  arithmetical,  partly  actuarial,  all  the  quantities  were 
known,  from  which  "  X  " — the  annual  premium — was  to  be 
computed. 

It  was  recognized  very  early  by  the  advocates  of  voluntary 
insurance  for  workmen  that  that  was  quite  an  impossible  plan 
to  follow.  It  was  a  perfectly  proper  and  feasible  thing  for 
Mr.  Roe  to  determine  at  the  age  of  thirty  to  make  his  definite 
annual  contributions  for  thirty-five  years  to  come.  But  very 
few  workmen  would  be  in  a  position  to  assume  such  an  obliga- 
tion, and  if  they  assumed  it,  a  still  smaller  proportion  would 
be  able  to  live  up  to  the  contract.  Surely  the  state  institution 
could  not  build  its  plan  of  relief  upon  thousands  of  lapsed 
policies  as  private  insurance  companies  do. 

In  the  French  National  Insurance  Institution,  the  actuarial 
computation  was,  therefore,  reversed.  The  premium  was 
assumed  and  the  amount  of  pension  made  dependent  upon  it. 
This  may  sound  very  technical,  but  the  underlying  principle 
may  be  easily  understood  without  knowledge  of  insurance 
technic. 

Suppose  a  workman  of  any  age,  say  twenty-five,  decides 
to  provide  for  an  old-age  pension,  to  begin,  say,  at  the  age  of 
seventy.  The  ages  here  are  entirely  illustrative  and  imma- 
terial from  the  point  of  view  of  principle.  The  following 
actuarial  rules  come  into  play. 

1.  Every  deposit  or  payment  made  by  him  at  the  age  of 
twenty-five  will  have  a  definite  value  at  the  age  of  seventy 
as  the  result  of  the  principle  of  compound  interest.  That  is 
only  an  arithmetical  or  algebraic  problem. 

Whether  uniform  deposits  at  regular  intervals,  annual, 
monthly,  or  weekly,  are  required,  or  whether  that  is  left  en- 
tirely to  the  discretion  of  the  insured,  is  immaterial.  The 
principle  remains  the  same.  The  final  value  of  each  of  the  in- 
dividual deposits  will  be  a  different  one,  not  only  according  to 


332  SOCIAL  INSURANCE 

the  amount  of  the  deposit  when  made  but  also  according  to  the 
length  of  time  it  remained  in  the  possession  of  the  insurance 
institution  and  was  drawing  compound  interest.  The  first  dol- 
lar deposited  at  the  age  of  twenty -five  at  4  1-2$  will  be  worth 
at  seventy  $7.57,  and  the  last  dollar  paid  in  at  sixty-nine 
will  be  worth  only  $1.04  1-2.  Naturally,  the  total  accumula- 
tion at  the  end  of  the  period  will  be  the  sum  of  these  separate 
values.  It  will  depend  entirely  upon  how  many  payments  the 
insured  will  have  made  and  at  what  period.  The  earlier  he 
begins  and  the  more  often  he  makes  his  payments,  the  larger 
will  be  the  amount  to  his  credit  at  the  age  of  seventy. 

As  yet  we  are  dealing  with  mathematics  only  and  not  actu- 
arial science,  with  savings  and  not  insurance.  But  having 
arrived  at  the  pension  age,  which  we  assumed  to  be  seventy, 
the  insured  does  not  get  the  value  of  his  deposits ;  instead  he 
gets  an  annuity  or  pension  in  annual  payments  as  long  as 
he  lives.  How  is  the  amount  of  it  computed?  There  the 
probability  of  life  comes  into  play.  The  average  probability  of 
life  at  the  age  of  seventy  is  8  1-2.  The  value  of  accumula- 
tions is,  let  us  say,  $1,000.  The  problem  again  is  simple. 
For  $1,000  an  annuity  of  a  certain  amount  may  be  purchased, 
as  has  already  been  explained. 

In  Mr.  Roe's  case,  the  problem  was  stated  thus:  How 
much  money  is  necessary  at  the  beginning  of  the  pension  period 
to  insure  an  annuity  of  $100  ?  Here  the  same  problem  presents 
itself  in  an  inverse  way :  Granted  the  amount  of  money  avail- 
able at  the  beginning  of  the  pension  period,  how  big  a  pen- 
sion may  be  purchased  with  it?  The  answer  depends  both 
upon  the  rate  of  interest  and  the  expected  mortality  and 
probability  of  life.  It  is,  therefore,  not  simply  an  arith- 
metical but  an  actuarial  problem. 

In  our  example,  then,  there  is  a  process  of  individual  sav- 
ings up  to  seventy,  and  the  insurance  principle  begins  at  sev- 
enty only.  In  actual  practice,  the  two  computations  can  be 
combined.  It  may  be  determined  that  a  deposit  of  $1  at  the 
age  of  twenty-five  will  produce  an  annual  pension  of  so  many 
cents  to  begin  at  seventy  and  last  until  death.  The  difference 
between  ordinary  private  savings  and  this  form  of  insurance 
lies  in  the  fact  that  the  insured  person  is  not  permitted  to  with- 
draw his  deposits  at  will,  as  he  may  from  a  savings  bank.  Of 
course,  if  he  dies,  before  acquiring  a  pension,  the  deposits  will 


STATE  INSURANCE  AGAINST  OLD  AGE       333 

be  returned  to  his  heirs.  That  is  known  as  the  reserved  capital 
form  of  insurance,  when  the  capital  is  reserved  for  the  benefit 
of  heirs  in  case  death  occurs  before  pensionable  age. 

But,  in  addition,  another  actuarial  principle  may  be  intro- 
duced, that  of  mortality  before  seventy.  Of  course,  of  all 
persons  insuring  at  twenty-five  or  thirty-five  or  forty-five,  a 
large  proportion  will  die  before  seventy.  Suppose  the  ac- 
cumulated value  of  the  deposits  is  not  returned  at  death. 
Naturally,  the  common  fund  for  those  surviving  will  be  greater 
at  the  time  they  reach  seventy.  That  also  is  not  a  matter  of 
accident.  The  number  of  deaths  at  various  ages  can  be  fairly 
accurately  foretold  in  advance  by  means  of  mortality  tables. 
And  so  it  can  be  computed  what  the  value  of  a  deposit  of  $1 
at  the  age  of  twenty-five  will  be  at  seventy,  if  only  those  sur- 
viving at  that  age  are  to  share  in  the  common  fund.  The 
value  of  that  deposit  will  be  higher  and  the  annual  pension 
beginning  with  seventy,  which  may  be  purchased  with  the  de- 
posit of  $1  at  the  age  of  twenty-five,  will  also  be  higher.  That 
is  known  as  i  l  insurance  at  alienated-capital  plan  ' '  because  in 
making  deposits,  the  insured  relinquishes  all  claims  to  its  value 
except  as  a  possible  old-age  pension.  It  will  be  objected  to, 
that  this  plan  makes  those  dying  before  the  pension  age  and 
their  families  contribute  to  the  old-age  pensions  of  the  sur- 
vivors, but  this  is  only  an  application  of  the  essential  prin- 
ciple of  insurance. 

In  fact,  only  this  form  (on  the  alienated-capital  plan)  is 
insurance  in  the  full  sense  of  the  word.  But  it  was  quite 
evident  that  it  was  not  applicable  to  many  workingmen's 
families  and  the  serious  objection  was  raised  that  such  a  form 
of  insurance  would  be  encouraging  the  selfish  workman  to  seek 
personal  protection  for  old  age  at  the  expense  of  the  family 's 
interests,  as  for  the  same  amount  of  contribution  he  might 
purchase  a  substantial  life  insurance  for  the  protection  of  the 
family. 

The  privilege  of  substituting  the  reserved-capital  plan  en- 
ables him  to  protect  the  interests  of  his  family  to  some  extent. 
Both  plans  are,  therefore,  open  to  the  workmen  under  all 
European  institutions  of  voluntary  state  old-age  insurance. 

The  reserved-capital  plan  is  more  appropriate  for  the  work- 
man with  a  family,  while  the  single  or  childless  may  naturally 
prefer  the  alienated-capital  plan.  In  actual  experience  of  the 


334 


SOCIAL  INSURANCE 


French  Old- Age  Insurance  Institution,  the  choice  between  the 
two  plans  is  about  equally  divided. 

It  is  clear  that,  with  the  same  contributions,  the  alienated 
plan  will  give  a  higher  old-age  pension.  This  may  be  illus- 
trated by  a  table  showing  the  conditions  in  the  French 
insurance  institution. 


AMOUNT  OF  ANNUAL  PENSION  PAYABLE  FOR  THE  DEPOSIT  OF  $100  WITH 
THE  NATIONAL  OLD-AGE  RETIREMENT  FUND,  BY  AGE  OF  DEPOSITOR 
AND  PLAN  OF  INSURANCE 


Age  of  depositor 

Amount  of  annual  pension  payable  for  the  deposit  of  $100 

Alienated-capital  plan 

Reserved-capital  plan 

Age  at  which  pension  begins 

Age  at  which  pension  begins 

50 
years 

55 

years 

60 
years 

65 

years 

50 
years 

55 
years 

60 
years 

65 
years 

3  years       

$51.22 
47.15 
38.95 
32.15 
26.18 
21.16 
17.15 
13.89 
11.22 
9.00 
7.13 

$74.66 
68.73 
56.77 
46.86 
38.16 
30.84 
24.99 
20.24 
16.35 
13.11 
10.40 
8.05 

$114.77 
105.66 
87.27 
72.05 
58.66 
47.41 
38.42 
31.12 
25.13 
20.16 
15.98 
12.37 
9.31 

$190.32 
175.22 
144.72 
119.47 
97.27 
78.62 
63.71 
51.61 
41.67 
33.42 
26.50 
20.51 
15.43 
11  13 

$41.15 
37.72 
30.25 
24.07 
18.99 
14.88 
11.55 
8.86 
6.68 
4.92 
3.52 

$59.98 
54.99 
44.09 
35.08 
27.68 
21.69 
16.84 
1291 
9.73 
7.17 
5.12 
3.52 

$92.21 
84.53 
67.79 
53.93 
42.56 
33.85 
25.89 
19.85 
14.96 
11.02 
7.88 
5.41 
3.53 

$152.91 
140.17 
112.41 
89.43 
70.58 
55.30 
42.93 
32.91 
24.80 
18.28 
1306 
8.97 
5.85 
3.53 

6  years  

10  years  

15  years 

20  years  

25  years 

30  years  

35  years 

40  years  

45  years         ...          . 

50  years 

55  years  

60  years 

Actuarial  tables  do  not  make  absorbing  reading,  but  the 
reader  is'  advised  to  give  some  attention  to  this  table.  It 
presents  the  strongest  argument  for  voluntary  insurance,  but 
also  discloses  the  weakness  of  it. 

The  combined  effects  of  mortality  and  compound  interest 
are  truly  wonderful.  One  payment  of  $100  at  the  age  of  three, 
will  guarantee  a  life  pension  of  $190.32,  beginning  at  the  age 
of  sixty-five,  and  running,  on  the  average,  eleven  years. 
Nevertheless,  there  are  very  few  parents  so  thoughtful  and 
self-sacrificing  as  to  take  upon  themselves  the  solution  of 
the  old-age  problem  for  their  children.  Even  if  made 
at  the  age  of  twenty,  this  one  payment  will  produce 
a  pension  of  $97.27.  In  view  of  such  wonderful  results,  it 
may  be  argued,  there  is  no  excuse,  except  almost  criminal 


STATE  INSURANCE  AGAINST  OLD  AGE       335 

thoughtlessness,  for  every  one  not  producing  a  substantial 
pension  for  himself.  But  though  these  actuarial  facts  have 
been  known  and  displayed  for  many  decades,  they  have  failed 
to  solve  the  old-age  problem. 

Naturally,  the  pensions  purchasable  on  the  reserved-capi- 
tal plan,  are  very  much  smaller.  By  paying  $1  (in  speaking 
of  the  wage-worker  it  will  perhaps  be  more  reasonable  to  use  a 
smaller  unit  as  an  illustration),  at  the  age  of  thirty-five,  the 
workman  may  purchase  a  pension  of  52  cents  on  the  alienated- 
capital  plan,  and  only  33  cents  on  the  reserved-capital  plan,  or 
36#  less. 

The  fact  that  nearly  one-half  the  insured  preferred  this 
latter  plan  shows  that  the  workmen  were  not  unmindful  of  the 
future  of  their  families  even  at  the  expense  of  their  own 
future  comforts. 

Thus  far  we  are  dealing  with  insurance  which  is  not  only 
voluntary,  but  self-supporting.  The  French  institution,  from 
the  very  beginning,  did  more  than  that.  It  offered  many  sub- 
sidies to  the  depositors,  both  direct  and  indirect.  The  indirect 
subsidy  was  granted  by  cheapening  the  insurance,  first  through 
the  elimination  of  the  element  of  profit  and,  second,  by  assum- 
ing the  cost  of  administration. 

Few  persons,  outside  of  the  insurance  circles,  appreciate 
what  an  enormous  charge  upon  premiums  administration 
expenses  present.  All  insurance  business  requires  a  complex 
administrative  machinery  of  clerical  and  executive  nature 
and  that  is  especially  true  when  insurance  must  be  effected 
by  means  of  an  enormous  number  of  very  small  payments. 
Within  recent  years,  for  instance,  the  number  of  individual 
deposits  made  into  the  French  institution  has  reached  nearly 
5,000,000,  which  would  average  some  16,000  deposits  per  day. 
The  amount  of  saving  represented  by  failure  to  charge  the 
insured  with  the  cost  of  administration  cannot  be  estimated 
by  the  actual  expenses  for  administration  the  institution  in- 
curred. In  addition  there  must  be  taken  into  consideration  the 
numerous  privileges  which  the  French  institution,  like  all 
similar  institutions,  enjoyed,  such  as  freedom  from  taxes,  from 
various  stamp  duties,  free  service  of  the  post-offices,  and  so 
forth. 

Thus,  the  very  fact  of  its  being  a  state  institution  meant  an 
indirect  subsidy.  But  in  addition  to  these  more  or  less  veiled 


336  SOCIAL  INSURANCE 

subsidies,  the  French  Old-Age  Institution  granted  a  more 
direct  subsidy  by  guaranteeing  a  higher  rate  of  interest  than 
could  be  obtained  in  the  commercial  savings  institutions. 
When  the  institution  was  first  organized,  this  guaranteed  rate 
of  interest  amounted  to  5$,  which  was  a  very  substantial  sub- 
sidy indeed. 

The  experience  of  the  French  institution  is  extremely  inter- 
esting in  furnishing  proof  of  how  Utopian  was  the  hope  of 
solving  the  problem  of  old  age  by  such  indirect  methods.  Of 
depositors  to  take  advantage  of  this  institution  with  cheap 
insurance  and  the  disguised  subsidy  of  a  5$  rate,  there  was  no 
dearth,  but  they  were  not  of  the  working  class. 

The  institution,  it  must  be  remembered,  was  not  limited 
to  the  members  of  the  wage-working  class.  Any  such  limita- 
tion would  have  been  very  much  out  of  harmony  with  the 
political  and  social  views  prevailing  at  the  time.  It  was 
offered  for  the  people  at  large,  with  the  natural  expectation 
that  only  the  poorer  classes  would  avail  themselves  of  this  op- 
portunity. In  this  respect,  the  expectations  were  not  realized. 

The  profitable  rate  of  investment  combined  with  the  pecu- 
liar love  of  the  French  bourgeois  for  a  quiet,  secure  old  age 
obtainable  by  the  purchase  of  an  annuity,  attracted  a  great 
number  of  small  property-owners.  Though  a  limit  was  put 
upon  the  maximum  deposit,  this  did  not  influence  matters  any 
more  than  the  maximum  amount  of  deposits  in  a  savings  bank 
in  this  country.  And  for  fifty  years  the  French  government 
struggled  with  the  problem  of  how  to  make  this  National  Old- 
Age  Retirement  Fund  a  poor  man's  institution.  On  one  hand, 
it  tried  to  limit  the  maximum  amount  of  deposits  permitted 
in  one  year,  and  on  the  other  hand,  reduced  the  guaranteed 
rate  of  interest  in  1882  to  4  1-2$,  in  1886  to  4$,  and  in  1891  to 
3  1-2$,  because  it  was  argued  that  the  difference  of  1-2$  meant 
a  great  deal  more  to  a  property-owner  with  large  deposits  than 
to  a  workingman. 

Finally,  in  1895,  the  admission  was  forced,  that  as  far  as 
the  individual  workingman  depositor  was  concerned,  the  in- 
stitution was  largely  a  failure  and  the  principle  of  direct  sub- 
sidies to  certain  depositors  was  introduced,  limited  to  persons 
with  a  pension  income  of  less  than  360  francs  ($69.48). 

Though  the  subsidies  were  small,  the  principle  was  impor- 
tant. Not  all  depositors  were  entitled  to  them,  but  only  those 


STATE  INSURANCE  AGAINST  OLD  AGE       337 

in  greatest  need.  Evidence  of  contributions  for  a  certain  length 
of  time  was  required  and  the  age  for  the  maturity  of  the  pen- 
sion with  the  privilege  of  getting  this  special  subsidy  was 
gradually  reduced  from  seventy  to  sixty-five. 

Very  similar  was  the  experience  and  the  development  of  the 
Belgian  "  General  Savings  and  Retirement  Fund/'  which  was 
also  started  in  1850.  Here,  too,  a  hidden  subsidy  of  a  guar- 
anteed high  rate  of  interest  was  given.  But  the  popularity 
of  the  fund  was  very  small  and  the  depositors  were  mainly 
of  the  middle  class.  In  the  early  nineties,  the  Belgian  govern- 
ment began  to  grant  small  subsidies  to  such  mutual  benefit 
societies  as  made  use  of  the  National  Fund  for  old-age  in- 
surance. 

That  was  a  very  praiseworthy  effort  to  combine  the  social 
advantages  of  a  mutual  benefit  society  with  the  financial 
advantages  of  a  state  controlled  and  scientifically  managed 
fund.  But  the  effect  of  this  law  was  not  as  thoroughgoing  as 
expected,  and  a  new  act  of  1900  established  more  direct  sub- 
sidies to  every  depositor  of  a  certain  group,  and  these  subsidies 
were  increased  in  1903. 

V  Thus,  the  experience  of  both  the  French  and  the  Belgian 
funds  showed  that  voluntary  state  old-age  insurance  for  work- 
men proved  a  dismal  failure  unless  it  was  accompanied  by 
direct  subsidies. 

The  other  two  Latin  state  institutions  for  voluntary  in- 
surance, which  were  established  at  a  very  much  later  date 
(Italy  in  1898  and  Spain  in  1908),  profited  by  the  experience 
of  the  French  and  Belgian  institutions,  which  they  have  fol- 
lowed quite  closely.  It  is  not  necessary,  therefore,  to  go 
into  details  concerning  these  two  countries.  The  Italian 
institution  is  officially  known  as  the  National  Institution  for 
the  Insurance  of  Workers  against  Invalidity  and  Old  Age 
(Cassa  Nazionale  de  Previdenza  per  la  Invalidita  e  per  la 
Vecchiaia  degli  Operai),  thus  emphasizing  the  special  purpose 
of  serving  the  wage-workers  of  the  country.  Other  classes  of 
the  population  may  also  insure,  but  under  less  favorable  con- 
ditions and  without  any  right  to  the  special  subsidies.  The 
necessity  of  granting  benefits  in  addition  to  the  free  cost  of 
administration  was  recognized  early  in  the  preparation  of  the 
plan.  Both  forms  of  insurance,  under  alienated  and  reserved 
capital,  are  permitted. 


338  SOCIAL  INSURANCE 

The  Spanish  Old- Age  Insurance  Institution  (Instituto 
Nacionale  de  Prevision),  established  by  the  act  of  February  27, 
1908,  and  organized  in  1909,  is  too  young  an  institution  to  give 
any  useful  lessons  as  yet.  It  was  admittedly  modeled  after 
the  French,  Belgian,  and  Italian  examples,  especially  the 
latter. 

In  regard  to  the  form  and  amount  of  subsidies,  the  greatest 
variety  between  the  institutions  mentioned  is  found.  The 
subsidy  provided  by  the  Belgian  act  of  1900  was  not  very 
great.  It  amounted  to  60  centimes  on  each  franc  paid  in  by 
the  depositor  up  to  a  maximum  of  15  francs  ($2.90)  each  year, 
the  maximum  subsidy  being,  therefore,  9  francs  ($1.74)  per 
annum.  For  persons  who  were  over  forty  years  old  at  the 
time  the  law  of  1900  was  passed,  the  maximum  was  increased 
to  14.40  francs.  The  subsidies  proved  sufficiently  attractive 
to  the  younger  elements  but  the  problem  of  old  age  was  press- 
ing and  older  men  did  not  seem  to  be  attracted,  so  for  their 
special  benefit  the  act  of  1903  was  passed,  increasing  the  sub- 
sidy to  the  older  persons  as  follows : 

A  subsidy  of  100$  on  the  first  6  francs  deposited  annually 
by  persons  forty  to  forty-five  years  old  on  January  1,  1903, 
or  up  to  6  francs,  this  subsidy  rising  to  150$,  or  up  to  9 
francs  for  persons  forty-five  to  fifty  years  at  that  time,  and  to 
200$,  or  up  to  12  francs  for  persons  over  fifty  years  old  at 
that  time. 

Thus,  the  total  maximum  subsidy  granted  to  persons  of  these 
three  age-groups  was  11.40,  14.40,  and  17.40  francs  respec- 
tively ($2.20,  $2.78,  and  $3.36). 

This  increase  of  the  subsidy  for  persons  over  a  certain  age 
at  the  time  the  subsidized  system  went  into  effect,  touches 
upon  one  of  the  most  difficult  problems  of  old-age  insurance. 
Briefly,  the  problem  is  this:  Granted  the  great  advantages  of 
old-age  insurance,  either  a  voluntary,  subsidized  system  which 
stimulates  thrift,  or  a  compulsory  system  which  may  be  said  to 
enforce  thrift, — all  this  may  hold  out  some  hope  of  a  more 
cheerful  old  age  to  the  men  and  women  in  youth  or  early  middle 
age,  but  what  does  it  offer  to  the  aged  people  who  have  already 
reached  the  pensionable  age,  or  are  very  near  it  ?  Absolutely 
nothing,  or  very  little.  In  other  words,  the  organization  of 
an  old-age  insurance  system  aims  to  solve  the  problems  of  the 
future,  but  has  nothing  for  the  problem  of  to-day. 


STATE  INSURANCE  AGAINST  OLD  AGE       339 

The  way  the  Belgian  government  was  forced  to  meet  that 
problem  was  practically  by  establishing  a  system  of  straight 
old-age  pensions,  but  giving  it  a  temporary  character.  As  the 
general  subject  of  straight  old-age  pensions  will  be  considered 
by  itself,  it  will  be  sufficient  to  mention  here  only  the  chief 
provisions  of  the  Belgian  system.  The  act  granting  the  very 
small  government  pension  of  65  francs  ($12.55)  was  the  same 
which  established  all  the  other  subsidies.  Persons  born  before 
1836  (i.e.,  sixty-five  years  old  or  over  in  1901)  were  given  the 
pension  outright.  Persons  born  from  1836  to  1842  (i.e.,  from 
fifty-eight  to  sixty-five  years  old  when  the  act  went  into  effect) 
were  to  get  the  pension  when  reaching  the  age  of  sixty-five. 
For  persons  born  in  1843,  1844,  and  1845  the  requirement 
was  exacted  that  they  prove  having  carried  insurance  in  the 
National  Old-Age  Insurance  Fund  for  at  least  three  years, 
having  paid  in  not  less  than  18  francs  ($3.47)  before  qualify- 
ing for  the  pension. 

The  granting  of  new  pensions  under  this  law  should,  there- 
fore, have  ceased  on  January  1,  1911,  but  a  further  extension 
to  persons  born  in  1846,  1847,  and  1848  was  granted  by  the 
act  of  May  11,  1912,  so  that  the  temporary  system  of  old-age 
pensions  in  Belgium  is  extended  to  January  1,  1914,  and  in  the 
meantime  preparations  for  a  comprehensive  compulsory  in- 
surance system  continue. 

The  subsidy  system  of  the  Italian  institution  is  not  so  com- 
plicated. It  was  thought  somewhat  dangerous  to  embody 
in  the  new  law  the  promise  of  a  definite  subsidy  for  fear 
there  might  be  such  an  influx  of  contributors  that  the  finances 
of  the  institution  would  be  overwhelmed.  The  institution  has 
an  endowment  fund  and  certain  guaranteed  revenues,  which 
may  be  used  for  giving  subsidies.  The  normal  state  benefit 
must  not  exceed  10  lire  ($1.93)  per  annum,  and  has  been 
kept  at  that  maximum  level.  While  the  amount  to  be  de- 
posited annually  by  the  insured  is  left,  as  in  all  similar  insti- 
tutions, to  their  discretion,  a  certain  degree  of  thrift  is  exacted 
before  the  subsidy  is  granted,  namely,  an  annual  deposit  of 
6  lire  ($1.10)  is  required. 

The  normal  age  of  arriving  at  the  pension  is  put  at  sixty  for 
men  and  fifty-five  for  women,  but  in  certain  industries  men 
may  require  a  pension  at  fifty-five,  or,  again,  they  may  post- 
pone it  to  sixty -five  years,  the  amount  of  pension  decreasing 


340  SOCIAL  INSURANCE 

in  the  first  instance  and  increasing  in  the  second.  Normally, 
twenty-five  years  of  insurance  is  required,  but  for  persons 
beginning  insurance  at  an  advanced  age  this  period  may  be 
reduced  to  ten,  and,  on  the  other  hand,  special  subsidies  are 
granted  to  such  persons,  as  otherwise  the  pensions  acquired 
would  be  too  small.  A  special  invalidity  fund  has  been 
created  by  lump-sum  appropriation  of  10,000,000  lire  and 
certain  additional  sources  of  income,  and  from  this  fund 
special  benefits  are  given  to  invalids,  who  must  apply  for 
earlier  grant  of  their  pension. 

In  the  Spanish  act,  too,  the  actual  amount  of  subsidies  is 
not  determined  in  the  law,  but  is  left  to  the  discretion  of  the 
directors,  but  must  not  exceed  12  pesetas  per  account  per 
annum  during  the  first  ten  years  of  the  institution.  Special 
subsidies  are,  however,  granted  to  persons  beginning  their 
insurance  at  an  advanced  age,  at  the  time  of  organization  of 
the  institution. 

Perhaps  it  is  unnecessary  to  explain  that  these  subsidies 
are  not  given  to  the  insured,  but  deposited  to  his  account  and 
go  to  swell  the  amount  of  pension  purchased.  That  is  their 
only  destination.  Recalling  the  distinction  between  insurance 
on  the  alienated-capital  and  the  reserved-capital  plan  (the 
family  of  the  insured  under  the  latter  plan  recovering  back 
the  payments  in  case  of  assured  dying  before  pension  age),  the 
subsidies  are  used  to  purchase  insurance  on  the  alienated- 
capital  plan  only.  Naturally,  under  this  subsidy  system,  the 
amount  of  pension  purchasable  with  certain  deposits  is  con- 
siderably enlarged.  The  possibilities  of  insurance  in  the 
Italian  Old-Age  Fund  are  eloquently  demonstrated  in  the 
table  on  the  opposite  page. 

To  the  wonderful  results  of  computed  interest  and  a  mor- 
tality table,  is  added  here  the  effect  of  the  subsidy,  and  the 
combined  results  are  shown  up  very  temptingly  before  the 
eyes  of  the  workingman.  For  instance,  if  a  workingman  be- 
gan his  regular  contribution  at  the  age  of  twenty,  and  regu- 
larly contributed  3  lire  a  month  (58  cents)  and  36  lire  a 
year  ($6.95),  then  at  the  age  of  sixty-five  he  may  begin  to 
draw  a  pension  of  1,015  lire,  or  $200,  per  annum,  on  the 
alienated  plan;  on  the  reserved  plan,  it  will  amount  to  only 
$125.  A  very  substantial  pension,  that,  in  Italy.  The  only 
question  is:  how  many  workingmen  are  willing  and  able  of 


STATE  INSURANCE  AGAINST  OLD  AGE       341 

their  own  free  will  and  out  of  their  own  resources  to  con- 
tribute 36  lire  to  this  one  purpose  of  old-age  pensions? 


EXPECTED  VALUE  OF  ANNUITIES,  BY  FORM  OF  INSURANCE,  AGE  AT 
TIME  OF  INSURING,  AND  AMOUNT  OF  CONTRIBUTION 

I  Source  :  Lnigi  Rava,  La  Cassa  Nazionale  di  Previdenza  per  la  Invalidita  e  per  la  Vec- 
chiaia  degli  Operai.] 


Form  of  insurance  and  age  at  time  of 
insuring 

Expected  value  of  annuity  for  annual 
premium  of  — 

Jl.lfl 
lire) 

$2.32 
(12  lire) 

$3.47 
(18  lire) 

$4.63 

(24  lire) 

$6.95 
(36  lire) 

ALIENATED  CAPITAL 

Pension  maturing  at  age  of  60,  insured 
at  age  of  — 
20  years      ... 

$29.72 
22.58 
16.60 
11.19 

53.27 
40.72 
30.69 
22.58 
16.21 

24.70 
19.11 
14.28 
9.84 

40.92 
31.85 
24.51 
18.34 
13.51 

$45.74 
34.55 
25.48 
17.56 

82.60 
62.92 
47.29 
34.55 
24.70 

35.51 
27.60 
20.84 
14.67 

57.90 
45.36 
34.93 
26.44 
19.49 

$61.76 
46.51 
34.35 
23.93 

111.94 
85.11 
63.88 
46.71 
33.39 

46.51 
36.09 
27.41 
19.69 

74.50 
58.67 
45.36 
34.55 

25.48 

877.78 
58.48 
43.23 
40.30 

141.28 
107.31 
80.48 
58.67 
41.88 

57.32 
44.58 
33.97 
24.51 

91.48 

72.18 
55.78 
42.65 
31.46 

$109.82 
82.41 
60.99 
43.04 

199.95 
151.70 
113.68 
82.80 
59.06 

79.13 
61.57 
47.09 
34.35 

125.06 
99.01 
76.62 
58.87 
43.43 

30  years                ...        

Pension  maturing  at  age  of  65,  insured 
at  age  of— 
20  years                  .  .        

30  years             .          

40  years         .  .  .  . 

RESERVED  CAPITAL 

Pension  maturing  at  age  of  60,  insured 
at  age  of  — 

25  years      .  .  .  .  .   .  .  .        

35  years      

Pension  maturing  at  age  of  65,  insured 
at  age  of— 

35  years  

It  must  be  admitted  that  the  state  subsidy  system  has 
had  its  perceptible  effect.  In  France,  for  instance,  the  num- 
ber of  new  deposit  accounts  opened  increased  from  90,000  in 
1898  to  236,000  in  1908.  It  is  true  that  in  France,  even  with 
this  direct  encouragement,  the  individual  workman  depositor  is 
a  rare  individual.  The  largest  part  of  the  activity  consisted  in 
furnishing  a  safe,  financially  sound  old-age  pension  system 
for  various  industrial  funds,  establishment  funds,  and  mutual 
benefit  societies,  which  are  satisfied  to  collect  the  dues,  but 
turn  their  funds  over  for  safe  management  and  also  in  order 


342  SOCIAL  INSURANCE 

to  get  the  subsidies  and  other  benefits,  to  this  institution.  This 
activity  is  not  unimportant,  and  it  can  scarcely  be  doubted  that 
the  subsidy  not  only  changed  the  channels  of  old-age  savings 
but  actually  stimulated  them.  Toward  the  end  of  the  last 
decade,  the  total  number  of  accounts  reached  a  million  and  a 
half. 

In  Belgium,  where  the  subsidy  was  direct  and  comparatively 
larger,  the  effect  was  even  more  perceptible.  In  1890  the 
number  of  insured  was  only  10,000  and  under  the  influence 
of  the  subsidies  began  to  grow,  though  slowly,  and  by  1899  it 
amounted  to  169,000.  The  systematic  granting  of  subsidies 
ordered  by  the  act  of  1900  in  one  year  doubled  the  number  of 
depositors.  In  1902  it  reached  half  a  million.  The  increase 
in  the  rate  of  subsidies  in  1903  brought  the  number  to  636,000, 
and  by  1910  it  was  well  over  1,000,000. 

Belgium's  experience  has  often  been  called  upon  to  prove 
the  great  results  possible  under  an  optional  system,  and  the 
superfluity  of  a  system  of  compulsion.  But  certainly  heroic 
measures  were  necessary  to  preserve  the  semblance  of  liberty, 
for  when  a  deposit  if  18  francs  within  three  years  gave  a  right 
to  a  life  pension  of  65  francs,  only  a  lunatic  might  be  expected 
to  fail. 

Of  all  the  four  institutions  for  voluntary  state  insurance, 
perhaps  the  Italian  may  be  adjudged  the  best  organized.  Its 
subsidies  are  much  more  systematic  than  those  of  the  French 
system,  while  the  Belgian  approaches  too  closely  a  straight 
government  annuity. 

The  statistical  information  concerning  the  activity  of  the 
Italian  institution  is,  unfortunately,  meager.  It  is  known, 
however,  that  some  twenty  to  fifty  thousands  of  new  applicants 
came  to  it  annually,  and  at  the  end  of  1910  the  total  num- 
ber of  accounts  opened  amounted  to  some  300,000,  and  that 
their  contributions,  by  that  time,  amounted  to  some  $5,000,000. 

All  the  data  are  satisfactory  as  far  as  they  go,  but  do  they 
go  far  enough?  What  proportion  of  the  wage-working  class 
has  the  system  of  Liberte  Assiste  been  able  to  attract  ? 

Leaving  out  of  consideration  the  Belgian  system,  for  reasons 
already  stated,  the  800,000  to  900,000  voluntary  depositors  in 
the  French  institution  scarcely  represent  one-fifth  of  the  mem- 
bers insured  against  sickness,  scarcely  8$  of  the  wage-working 
class,  scarcely  4#  of  the  persons  in  gainful  occupations.  For 


STATE  INSURANCE  AGAINST  OLD  AGE       343 

of  these  900,000  insured,  over  100,000  were  not  wage-workers, 
but  salaried  employees,  and  450,000  were  petty  accounts  of 
pupils. 

No  better  is  the  situation  in  Italy,  as  with  a  population  of 
35,000,000,  of  whom  probably  18,000,000  are  gainfully  em- 
ployed, the  insured  scarcely  represent  2$.  Even  the  industrial 
population  alone,  not  counting  agriculture,  is  over  6,000,000, 
so  that  the  insured  scarcely  represent  5$  of  that  number,  after 
twelve  years  of  operation.  And  yet  the  period  of  greatest 
growth  for  the  Italian  system  seems  to  have  passed.  In  1906 
over  150,000  new  accounts  were  started,  in  1907,  35,000,  and 
in  1908  less  than  29,000. 

Nor  is  this  all.  An  account  started  does  not  necessarily 
mean  an  account  kept  up.  Enthusiasm  may  wane  or  the  eco- 
nomic strength  may  be  overestimated.  Very  interesting  light 
is  thrown  upon  this  problem  by  a  special  investigation  made  in 
1904  and  covering  the  years  1900-1903,  i.e.,  the  first  four  years 
of  operation  of  the  fund.  This  investigation  proved  beyond 
any  reasonable  doubt  the  very  significant  fact  that  the  number 
of  dormant  accounts,  i.e.,  accounts  on  which  no  deposits  were 
made  during  the  year,  is  rapidly  increasing.  In  1900,  they 
were  only  2$  of  all  depositors;  in  1901,  6  1-2$;  in  1902,  12$, 
and  in  1903,  28  1-2$.  In  other  words,  many  make  good  reso- 
lutions but  neglect  to  keep  up  their  contributions — no  matter 
what  the  cause. 

If  this  was  the  fact  in  three  or  four  years,  it  may  be  sur- 
mised what  the  result  would  be  after  twenty-five  or  thirty 
years. 

Another  feature  is  the  very  low  average  of  contributions: 
in  1901,  42.8$,  and  in  1903,  31.7$,  of  all  accounts  contributed 
just  6  lire  annually,  i.e.,  the  minimum  necessary  to  qualify 
for  the  subsidy.  Only  from  25$  to  28$  contributed  over  10 
lire.  The  discontinuance  of  accounts  is  gradual.  Thus,  in 
1902,  27$  paid  less  than  6  lire  (thus  losing  the  right  to  the 
subsidy)  and  12$,  nothing  at  all.  The  next  year  7.7$  paid  less 
than  6  lire,  and  28.5$,  nothing  at  all. 

It  is  but  safe  to  assume  similar  conditions  in  other  state 
institutions.  Of  course,  the  state  insurance  system  has  that 
tremendous  advantage,  that  it  knows  no  lapsed  policies — the 
curse  of  private  insurance  among  wage-working  classes. 

In  absence  of  lapses,  however,  the  result  of  irregularity  in 


344  SOCIAL  INSURANCE 

payments  is  to  produce  pitifully  small  pensions.  As  to  how 
this  worked  out  in  Italy,  no  information  is  as  yet  available. 
The  Italian  system  is  still  in  its  accumulating  period.  But  the 
old  French  institution  furnishes  some  very  telling  material  for 
judgment  on  this  point.  The  average  pension  has  declined 
from  $34.48  in  1891,  to  $24.14  in  1908.  The  average  of  the 
pension  granted  at  present  is  only  $16  to  $17.  In  fact,  over 
one-half  of  the  pensions  granted  (53$  to  56$)  are  less  than  50 
francs  ($9.65)  per  annum,  and  only  10$  are  over  200  francs 
($38.60).  When  these  amounts  are  considered,  the  fact  that 
the  institution  has  from  300,000  to  400,000  pensioners  loses  a 
good  deal  of  its  brilliancy. 

Similar  conditions  are  found  in  Belgium.  The  average  an- 
nual payment  per  account  has  been  decreasing.  In  1900  it 
amounted  to  $3.92,  in  1905  to  $3.14,  and  in  1908  to  $2.82.  The 
average  accumulation  per  account  in  1898  was  $43,  and  in  1908 
only  $25. 

The  capacity  of  the  Belgian  worker  for  accumulation  is 
sufficiently  demonstrated  by  these  figures. 

We  have  given  this  rather  full  account  of  the  voluntary 
state  insurance  systems  against  old  age  because  they  are  very 
little  known  in  the  United  States,  and  because  their  discussion 
is  usually  limited  to  the  legal  provisions  which  make  a  much 
better  appearance  than  the  actual  results  as  disclosed  by  their 
impartial  and  unadorned  statistics. 

To  an  unprejudiced  student,  the  statistical  data  presented 
seem  to  justify  the  following  conclusions: 

1.  That  even  a  heavily  subsidized  system  of  voluntary  old- 
age  insurance  attracts  only  a  small  proportion  of  the  working 
class,  presumably  of  the  better-paid  strata. 

2.  That  even  of  those  who  begin  accounts,  a  large  and 
growing  proportion  fail  to  continue  to  make  the  necessary 
contributions  with  any  regularity. 

3.  That  usually  only  the  minimum  is  contributed  which  is 
necessary  to  acquire  the  subsidies. 

4.  That  the  workingmen  are  forced  to  reduce  their  old-age 
pensions  in  order  to  safeguard  the  interest  of  their  families, 
and 

5.  That  the  pensions  actually  acquired  are  pitifully  small. 


CHAPTER  XXII 
COMPULSORY  OLD-AGE  INSURANCE 

THE  failure  of  the  system  of  subsidized  freedom  to  accom- 
plish all  that  was  hoped  for  it,  must  not  close  one 's  eyes  to  its 
positive  achievements.  Above  all,  it  cannot  be  used  as  an 
argument  against  the  adaptability  of  the  insurance  principle 
to  the  problems  of  old  age.  The  cause  of  this  failure  may  be 
stated  in  a  very  few  words — unwillingness  or  inability  of  the 
working  class  to  keep  up,  of  its  own  free  will,  a  comprehensive 
system  of  voluntary  insurance.  Whichever  of  the  factors  one 
is  inclined  to  emphasize,  the  conclusion  points  toward  a  sys- 
tem by  which  such  insurance  could  be  enforced  and  at  the 
same  time  subsidized — a  conclusion  which  has  already  been 
tested  in  case  of  sickness  insurance.  Nevertheless,  it  must 
be  remembered  that,  as  a  matter  of  historical  fact,  this  is  not 
the  only  solution  advanced.  Modern  Europe  (and  to  some 
extent  civilized  countries  outside  of  Europe)  is  at  present 
testing  two  answers  to  the  problem  of  old  age:  one  aims  to 
overcome  the  unwillingness  by  compulsion,  and  the  inability 
by  substantial  subsidies,  and  thus  make  insurance  universal. 
The  other  is  a  complete  negation  of  the  insurance  methods 
(if  not  of  the  insurance  principles),  and  a  straight  grant  of 
an  old-age  pension.  Both  systems  have  their  adherents  and 
opponents,  and  the  controversy  is  one  of  the  most  important 
problems  of  social  insurance.  Both  sides  to  the  controversy 
must,  therefore,  be  carefully  heard  before  an  independent 
opinion  may  be  formed  as  to  their  merits.  But  it  would 
evidently  be  futile  to  consider  the  arguments  before  the  most 
important  facts  in  connection  with  both  systems  have  been 
learned. 

The  first  effort  at  a  comprehensive  national  system  of  com- 
pulsory old-age  insurance  is  admittedly  the  German  act  of 
1889.  Until  very  recently  it  was  also  the  only  one,  if  the  old- 
age  insurance  system  of  the  little  duchy  of  Luxemburg,  estab- 
lished and  modeled  in  all  its  essential  features  after  the 

345 


346  SOCIAL  INSURANCE 

German  system  be  disregarded,  because  of  its  extremely  narrow 
application. 

In  1906  Austria  followed  Germany's  example  by  organizing 
its  system  of  compulsory  old-age  insurance,  but  limiting  it  to 
salaried  employees  only.  This  rather  curious  feature  of  the 
law  places  it  outside  of  the  sphere  of  workmen's  insurance, 
while  not  necessarily  depriving  it  of  its  claim  to  be  considered 
a  social  insurance  measure.  But  in  this  instance  the  social 
influence  of  the  state  is  used  for  the  benefit  of  a  middle-class 
element — possibly  an  expression  of  the  growing  middle-class 
movement  in  modern  Europe. 

It  remained,  therefore,  for  France — the  traditional  enemy  of 
Germany — to  be  the  first  to  accept  Germany's  lesson  on  an 
equally  comprehensive  scale,  by  the  act  of  April  5,  1910. 

National  compulsory  old-age  insurance  is,  therefore,  ex- 
emplified by  the  two  systems,  those  of  Germany  and  France. 
Logically,  compulsory  insurance  follows  experiments  with 
voluntary  subsidized  insurance.  Historically,  the  sequence  of 
events  is  somewhat  disturbed,  for  the  German  system  of  1889 
preceded  the  French  subsidy  act  of  1895,  the  organization  of 
the  Italian  voluntary  subsidized  old-age  insurance  system  of 
1898,  the  Belgian  subsidy  system  of  1900,  and  the  Spanish 
institution  of  1908.  Nevertheless,  when  each  country  is  taken 
separately,  the  discrepancy  between  logic  and  history  is  not  so 
great.  In  France  the  transition  from  the  voluntary  to  the 
compulsory  system  was  typical.  A  similar  step  is  contem- 
plated in  other  countries  where  voluntary  insurance  at  present 
exists. 

And  while  it  is  true  that  only  two  x  countries  have  as  yet  in- 

JThe  act  of  January  25,  1912,  establishing  a  compulsory  old  age  and 
invalidity  insurance  system  in  Roumania,  .and  according  to  latest  informa- 
tion available  not  yet  in  force,  reached  the  author  too  late  to  be  embodied  in 
the  above  text.  In  addition,  newspapers  report  the  adoption,  on  July  26, 
1913,  of  a  compulsory  old-age  insurance  system  in  Sweden,  making  the 
total  number  of  countries  with  such  systems  five :  Germany,  Luxemburg, 
France,  Roumania,  and  Sweden. 

The  Roumanian  act  seems  to  be  a  compromise  between  the  German  and 
French  acts. 

The  age  of  pensioning  is  65,  the  normal  old-age  pension  150  lei  ($28.95), 
and  the  invalidity  pension  is  increased  by  10  bani  (2  cents)  for  every  weekly 
contribution  over  200.  Invalidity  is  defined  as  inability  to  earn  one-third  of 
the  normal  amount  (principle  borrowed  from  Germany).  The  weekly  con- 
tributions are  uniform  for  all  classes  of  insured  (French  method) ;  namely, 


COMPULSORY  OLD-AGE  INSURANCE          347 

troduced  such  insurance  on  a  national  scale  (as  against  nine 
with  systems  of  sickness  insurance),  this  does  not  at  all 
cover  the  field  of  application  of  the  compulsory  principle 
to  old-age  insurance.  Already,  in  connection  with  sickness 
insurance,  the  "  industrial  "  systems,  i.e.,  those  limited  to  cer- 
tain industries,  have  been  referred  to.  These  industrial  pen- 
sion funds  deal  with  old-age  pensions  (and  also  widows'  and 
orphans'  pensions)  much  more  extensively  than  with  sick- 
benefits.  They  are  truly  compulsory,  usually  in  virtue  of 
definite  legislative  acts,  and,  therefore,  are  important  facts  of 
social  insurance,  though  usually  because  of  their  limited  appli- 
cation, because  of  difficulty  in  obtaining  information,  and  be- 
cause most  of  these  systems  antedate  the  modern  era  of  social 
insurance,  they  are  quite  neglected  in  ordinary  accounts  of  the 
progress  of  social  insurance.  As  has  already  been  stated  on 
several  occasions,  in  three  branches  of  industry,  mining, 
navigation,  and  railroads,  are  they  most  common.  In  the  min- 
ing industry  there  is  the  Austrian  compulsory  old-age  pension 
fund  established  by  the  act  of  1854 ;  the  Belgian  old-age  fund, 
established  in  1868;  the  French  miners'  old-age  insurance 
system,  established  by  the  act  of  1894;  the  Russian  system, 
limited  to  the  government  mines,  by  the  act  of  1881. 

In  the  navigation  industry,  perhaps  the  oldest  system  is 
that  of  France — created  as  early  as  1673,  and  repeatedly  re- 
organized since  then.  This  is  one  of  the  earliest  social  insur- 
ance organizations  in  Europe.  In  Belgium  the  Seamen's  Aid 
and  Provident  Fund  was  organized  in  1884,  introducing  a 
system  of  compulsory  old-age  insurance  for  seamen  on  vessels 
flying  the  Belgian  flag.  In  Germany  a  separate  pension  system 
for  the  navigation  employees  has  been  introduced  by  the  act 
of  1907,  which  is  much  more  liberal  than  the  general  national 
system. 

The  railroad  industry  is  the  youngest  of  the  three  branches 
of  industrial  activity,  nevertheless,  it  is  perhaps  the  best 
provided  by  old-age  insurance  and  pensions.  In  France  in- 
dependent pension  funds  were  organized  by  the  various  rail- 
roads from  the  early  fifties.  By  the  law  of  July  26,  1909, 
they  became  compulsory  for  all  important  railroad  systems. 

45  bani  (8.7  cents),  but  a  new  principle  is  introduced  in  the  requirement 
that  the  amount  of  contribution  be  shared,  in  equal  parts,  by  employer, 
employee  and  state. 


348  SOCIAL  INSURANCE 

In  Italy  pension  funds  were  organized  by  the  private  rail- 
roads voluntarily  in  the  sixties  and  seventies,  but  when  almost 
the  entire  railroad  system  was  purchased  by  the  government, 
though  for  the  purposes  of  operation  they  were  leased  to 
private  corporations,  yet  uniform  pension  systems  were  pre- 
scribed by  the  act  of  April  27,  1885.  By  the  law  of  July, 
1908,  after  the  operation  was  undertaken  by  the  government 
itself,  one  consolidated  system  was  substituted.  In  Russia  the 
private  pension  funds  were  organized  by  the  railroads  as 
early  as  1858.  They  were  made  compulsory  by  a  general  act 
for  all  private  railroads  in  1888,  and  for  the  state  railroads  in 
1894.  In  Belgium  one  centrail  railroad  pension  fund  existed 
by  virtue  of  the  law  of  1884.  In  most  other  countries  railroad 
employees  have  pension  funds  either  made  compulsory  by  the 
employer  or  voluntary. 

Finally,  there  is  a  vast  variety  of  compulsory  old-age  insur- 
ance systems  and  pensions  funds  for  employees  of  the  gov- 
ernmental industrial  establishments.  They  are  most  impor- 
tant naturally  in  those  countries  in  which  government  indus- 
trial activity  is  most  highly  developed;  as  examples  may  be 
quoted  the  state  tobacco  factories  of  Italy  and  France,  the 
liquor  monopoly  service,  and  various  metal-working  establish- 
ments in  Russia. 

Nevertheless,  it  remains  quite  true  that  the  national  sys- 
tems of  Germany  and  France  are  of  the  greatest  importance, 
both  because  of  the  vast  number  of  wage-workers  concerned 
and  because  in  the  striving  for  universality  does  the  practice  of 
compulsion  find  its  main  defense ;  and  a  comparative  study  of 
these  two  systems  must  now  be  undertaken. 

As  both  old-age  insurance  systems  are  extremely  compli- 
cated, the  detailed  study  of  either  of  them  is  a  task  of  con- 
siderable magnitude  and  difficulty,  because  they  combine  a 
vast  variety  of  legal,  administrative,  and  actuarial  details. 
The  determination  of  the  extent  of  the  application  of  the  law, 
the  adjustment  and  the  promised  benefits,  the  financial  organ- 
ization in  view  of  the  necessity  for  large  accumulations  of  capi- 
tal, the  adjustment  of  the  new  system  to  the  existing  pro- 
visions for  old-age  insurance  so  as  not  to  disturb  them,  the 
proper  balancing  of  distribution  of  the  burden  between  the 
state,  employer  and  insured,  the  necessity  of  special  provision 
for  the  older  men  and  women  who  cannot  expect  to  profit  by 


COMPULSORY  OLD-AGE  INSURANCE          349 

insurance  alone,  and  the  usual  combination  of  invalidity 
insurance  and  often  widows'  and  orphans'  insurance  with  the 
old-age  features,  such  are  only  a  few  of  the  problems  which  a 
comprehensive  old-age  insurance  system  must  meet  some  way 
or  other,  and  in  connection  with  each  one  of  them  many  diver- 
gent views  are  advanced.  It  will  be  impossible,  therefore,  to 
give  here  more  than  a  comparative  outline  of  the  main  pro- 
visions and  results.2 

Admittedly,  the  French  system  has  been  developed  under  the 
influence  of  the  German  example;  but  having  been  adopted 
twenty  years  later,  it  found  many  conditions  existing  which 
Germany  did  not  have  to  take  into  consideration;  this  alone 
will  explain  most  of  the  differences. 

The  basic  principles  of  the  two  schemes  may  be  indicated 
in  a  rather  schematic  way  in  a  few  words.  Both  systems  aim 
to  cover  the  entire  wage-working  population  in  the  system  of 
compulsory  insurance,  but  in  addition  permit  optional  ad- 
herence to  certain  classes,  standing  near  but  a  little  above 
the  working  class.  Both  combine  old-age  insurance  with  in- 
validity insurance,  but  in  the  German  system  invalidity  plays 
a  very  much  more  important  part  than  in  the  French  system. 
Both  systems  admit  the  necessity  of  subsidizing  the  premiums 
paid  by  the  insured,  both  by  contributions  from  the  employers 
and  the  state,  and  on  very  similar  principles — the  insured  and 
employer  contributing  the  same  premiums,  while  the  state 
gives  one  uniform  bonus  to  each  maturing  pension.  The 
details  of  computing  the  contributions  and  the  pensions  are, 
however,  radically  different.  The  administration  and  organ- 
ization of  the  systems  is  also  very  much  different,  because 
in  Germany  it  is  centralized  in  a  small  number  of  state  insti- 
tutions, while  in  France  wide  freedom  of  selection  is  given  to 
the  insured;  for  the  French  government  found  a  large  num- 
ber of  various  organizations  for  old-age  insurance  existing,  and 
their  destruction  was  neither  desirable  nor  practical. 

With  these  general  statements  kept  in  mind,  a  more  careful 
study  of  the  two  systems  may  be  undertaken. 

2  The  reader  interested  in  obtaining  more  detailed  and  accurate 
information  may  find  it  in  the  respective  chapters  of  the  Twenty-fourth 
Annual  Report  of  the  Commissioner  of  Labor.  For  the  texts  of  the  acts 
see  Bulletin  of  the  Bureau  of  Labor  No.  91.  Also  "  Compulsory  Old  Age 
Insurance  in  France,"  by  the  author,  Political  Science  Quarterly,  Sep- 
tember, 1911. 


350  SOCIAL  INSUKANCE 

Universality  in  the  application  of  the  system,  as  has  already 
been  stated,  is  both  the  ideal  and  the  justification  of  the  com- 
pulsory principle,  but  in  practice  the  achievement  of  the 
ideal  often  meets  many  obstacles.  The  German  system  ap- 
plies to  all  wage-workers  in  industry,  transportation,  com- 
merce, agriculture,  and  domestic  service;  and  to  salaried  em- 
ployees earning  less  than  2,000  marks  ($476)  per  annum. 

The  French  system  is  equally  comprehensive,  except  that 
even  for  wage-earners  there  is  a  limit  of  3.000  francs  ($579). 
Besides,  the  French  law,  having  found  in  existence  several 
large  industrial  groups  with  compulsory  insurance  systems 
much  more  liberal,  excepted  them  from  the  provisions  of  the 
new  law.  Nevertheless,  there  are  large  classes  of  persons  in 
modest  economic  conditions,  who  are  not  less,  or  perhaps  even 
more,  in  need  of  old-age  provision  than  persons  regularly 
employed;  there  is,  first,  the  still  larger  class  of  artisans, 
working  on  their  own  account.  There  are  the  workers  who 
are  paid  for  services,  the  casual  laborers,  the  farm-tenants, 
and  so  forth.  It  is  argued  that  since  a  subsidy  from  the 
employer  is  the  reward  for  compulsion,  and  as  these  classes 
have  no  regular  employer,  it  would  not  be  just  to  apply  the 
principle  of  compulsion  to  them  without  granting  them  the 
reward.  But  it  would  seem  that  better  justice  would  be  for 
the  state  to  meet  this  part  of  the  burden,  which  in  other  cases 
the  employer  is  made  to  bear. 

There  is  another  difficulty,  however,  to  the  extension  of  a 
compulsory  system  to  these  economic  strata,  and  that  is  the 
administrative  difficulty  of  exacting  small  payments  from  in- 
dividuals. For  the  administrative  basis  of  a  compulsory  sys- 
tem consists  in  making  the  employer  responsible  for  the  col- 
lection of  the  contributions  of  premiums.  Evidently  a  serious 
hiatus  is  thus  created  in  the  striving  of  the  compulsory  system 
for  universality. 

To  meet  these  limitations  somewhat,  both  systems  provide 
for  voluntary  insurance  in  addition  to  the  compulsory  system. 
This  is  open  in  both  countries  to  artisans,  casual  workers, 
small  employers  of  labor,  to  employees  having  an  income  some- 
what above  the  maximum  under  the  compulsory  system  [in 
Germany  over  2,000  Marks  to  3,000  Marks  ($476  to  $714),  in 
France  3,000  francs  to  5,000  francs  ($579  to  $965)],  and  in 
addition  to  these,  share  tenants,  independent  farmers,  and 


COMPULSORY  OLD-AGE  INSURANCE          351 

also  wives  and  widows  of  insured  persons,  are  permitted  to 
avail  themselves  of  the  advantages  of  the  system,  except 
the  employer's  contribution.  To  be  sure,  France  had  its 
voluntary  system  of  state  old-age  insurance  for  many  years 
before  this  new  act  was  passed.  But  the  new  law  provides  a 
system  of  state  subsidies  which  is  far  in  advance  of  the  earlier 
subsidies  under  the  acts  of  1895  and  1898,  and  that  is  expected 
to  prove  a  further  stimulus  to  voluntary  insurance. 

Under  these  rules  a  very  large  majority  of  the  working 
population  should  be  insured.  In  Germany,  in  1910,  out  of  a 
population  of  63,000,000  over  16,000,000  were  insured,  or 
nearly  25$.  Considering  that  persons  under  sixteen  were 
not  insurable,  and  that  married  women  do  not  often  carry 
the  insurance,  the  proportion  is  very  high,  probably  much 
more  than  one-half  of  the  adult  population.  It  was  by  2,000,- 
000  greater  than  the  number  insured  against  sickness,  as  in 
the  latter  system  several  large  wage-earning  groups  were  left 
out.  On  the  other  hand,  there  were  over  27,000,000  persons 
insured  against  accidents,  or  12,000,000  more  than  against 
old  age.  The  difference  is  mainly  explained  by  the  large  num- 
ber of  independent  farmers  insured  against  accidents  but  not 
against  old  age. 

In  France,  with  a  population  of  40,000,000,  the  number  of 
persons  subject  to  compulsory  insurance  was  estimated  at 
10,500,000,  or  26$,  and  voluntary  insurance  is  available  to 
6,000,000  more.  In  Germany,  experience  has  shown  that  of 
the  voluntary  insurance  very  little  use  has  been  made,  but  it  is 
not  unlikely  that  the  optional  feature  of  the  law  would  be 
somewhat  more  successful  in  France.  However,  it  must  not 
be  forgotten  that  in  addition  to  these  10,500,000  over  half  a 
million  are  insured  under  the  industrial  systems  in  mining, 
navigation,  and  railroading. 

Contributions  are  made  both  by  the  employer  and  employee 
in  equal  amounts,  and  the  funds  thus  accumulated  and  in- 
vested are  expected  to  meet  the  cost  of  pensions.  It  would 
be  more  exact  to  say  that  the  employer  makes  the  contribu- 
tion, but  is  permitted  by  law  to  discount  one-half,  but  no 
more,  from  the  wages  of  his  employees.  It  is  important  to 
bear  this  distinction  in  mind,  because  in  actual  practice,  the 
custom  is  growing  for  employers  not  to  make  these  discounts 
but  to  bear  the  entire  cost.  Of  course,  this  is  perhaps  of 


352  SOCIAL  INSURANCE 

smaller  importance  than  it  would  seem  to  be,  as  in  either  case 
the  share  of  the  employee  is  a  deferred  wage  payment  and 
will  be  discounted  in  the  competitive  labor  market.  In  other 
words,  this  custom  is  no  different  from  any  difference  of 
wages  paid  by  the  more  generous  or  wise  employer. 

In  this  principle  France  has  followed  the  German  precedent 
even  up  to  the  payment  of  dues  by  means  of  special  stamps 
attached  by  the  employers  to  the  wage-earners'  cards. 

Similarly,  the  German  influence  was  strong  in  the  system 
of  state  contributions.  The  share  of  the  state,  besides  bear- 
ing all  the  cost  of  central  administration,  furnishing  post- 
offices  as  financial  agencies  free,  is  a  direct  contribution  to  the 
pension,  not  during  the  insurance  period,  but  after  it  has 
matured. 

In  Germany  the  amount  is  50  Marks  per  annum  ($11.90). 
In  France  the  subsidy  provided  in  the  original  act  was  60 
francs  ($11.58),  but  to  overcome  the  opposition  among  radical 
labor  organizations  (of  which  more  anon)  it  was  increased 
to  100  francs  ($19.30)  by  the  act  of  February  27,  1912.  How- 
ever, the  German  subsidy  is  absolutely  uniform,  while  the 
French  system  is  somewhat  more  elastic.  Briefly,  thirty 
annual  payments  are  required  to  entitle  the  insured  to  this 
subsidy.  If  the  payments  are  over  fifteen,  but  less  than  thirty, 
2  1-2  francs  for  each  year's  payment  is  granted. 

A  radical  difference  is  observable  in  the  amount  of  weekly 
contributions  or  premiums,  the  German  system  preferring 
the  graded  plan,  and  the  French  system  the  uniform  plan. 
The  comparative  advantages  of  both  plans  constitute  one  of 
the  mooted  questions  of  the  theory  of  social  insurance.  It  is 
argued  on  one  hand  that  provision  for  old  age  must  take  into 
consideration  the  standard  of  life  of  the  individual,  and,  there- 
fore, must  be  made  a  function  of  the  earnings,  as  is  the  case 
in  accident  and  sickness  insurance;  that  the  working  class 
economically  is  not  at  all  the  homogeneous  mass  it  is  assumed 
to  be,  and  that  neither  their  needs  nor  their  paying  capacity 
are  the  same.  But,  on  the  other  hand,  it  is  argued  with  equal 
conviction,  and  perhaps  with  even  more  justice,  that  at  best  the 
provision  granted  for  old  age  is  a  modest  one,  aiming  to 
furnish  only  the  "  existenzminimum,"  which  is  assumed 
to  be  one  for  all  wage-workers.  Perhaps  a  still  more  convinc- 
ing argument  in  favor  of  uniformity  is  the  comparative  sim- 


COMPULSORY  OLD-AGE  INSURANCE          353 

plicity  of  administration,  and  the  avoidance  of  many  technical 
problems,  which  the  grading  of  contributions  and  of  pensions 
creates. 

The  French  system  is  in  fact  extremely  simple.  Under  the 
compulsory  system  adult  males  pay  9  francs  per  annum,  or 
3  centimes  per  day ;  adult  females  pay  6  francs  per  annum,  or 
2  centimes  per  day,  and  minors  4  1-2  francs  per  annum,  or 
1  1-2  centimes  per  day,  and  the  employer  contributes  an  equal 
amount,  so  that  the  actual  premium  is  double  the  amounts 
quoted.  For  voluntary  insurance  a  certain  range  is  permitted 
between  5  and  18  francs. 

In  Germany  the  system  of  contributions  is  complicated.  An 
actual  adjustment  to  the  true  wages  which  was  contemplated 
originally  would  have  created  enormous  complications.  The 
existing  system  is  a  compromise  between  the  two  principles,  in 
that  it  provides  a  classification  of  all  degrees  of  wages  into 
five  groups.  Until  the  radical  overhauling  of  the  entire  sys- 
tem of  social  insurance  in  Germany  in  1911,  the  classification 
of  the  wage-groups,  and  the  respective  rate  of  contributions 
was  as  follows: 

Wage  Weekly 

group  Annual  earnings  contributions 

1  350  M.  or  under  $83.80    or    under  14  Pf.  13.3tf 

2  350  M.  to  550  M.  83 . 80  to  $130 . 90  20  "  14 .  8t 

3  550      "    850  "  130.90  "     202.30  24  "  15.7tf 

4  850      "  1150  "  202.30  "     273.70  30  "  17.1tf 

5  1150   M.   or  over      273.70  or  over          36  "  18.6^ 


Of  these  amounts  the  employer  and  the  employee  contribute 
one-half.  On  a  basis  of  fifty  weeks  of  employment  these  con- 
tributions would  amount  to:  7,  10,  12,  15,  and  18  Marks 
($1.66,  $2.86,  $3.57,  $4.28,  and  $5.15).  The  rate  of  contribu- 
tions was  slightly  increased  by  the  comprehensive  revision  of 
the  whole  insurance  code  in  July,  1911,  but  as  the  increase  of 
contributions  was  made  only  for  the  purpose  of  providing  an 
independent  and  new  form  of  social  insurance,  namely, 
widows'  and  orphans'  pensions,  perhaps  it  is  not  necessary 
to  go  into  these  changes  at  this  place. 

A  good  deal  of  criticism  was  heard  in  Germany  at  the  time 
of  introduction  of  the  old-age  insurance  system  and  during 
the  first  few  years  of  its  operation,  and  again  in  France  im- 


354  SOCIAL  INSURANCE 

mediately  after  the  law  of  1910  was  passed,  against  the  levy- 
ing of  the  heavy  burden  upon  the  wage- worker.  As  the  entire 
opposition  to  the  contributory  insurance  principle  on  the  side 
of  the  workingmen  and  their  preference  for  a  straight  pension 
is  based  upon  this  feature  of  contributions  from  the  em- 
ployee, it  will  be  preferable  to  postpone  the  discussion  of  this 
problem  until  the  straight  pension  has  been  studied.  It  may 
be  noted  at  present  that  the  proportion  of  the  contribution 
to  the  wages  is  not  very  high,  between  1-2$  and  1  1-2$,  accord- 
ing to  the  wage  level.  The  burden  of  the  contribution  will 
be  felt  more  perceptibly  in  the  lower  wage-groups,  and,  per- 
haps, a  better  adjustment  would  have  been  indicated.  The 
same  may  be  even  more  emphatically  said  of  the  French  sys- 
tem, because  the  contribution  is  the  same  for  all  wage-groups. 
The  British  sickness  and  invalidity  insurance  system,  which 
raises  the  share  of  the  employer  in  cases  of  the  lower  wage- 
groups,  offers  a  very  ingenious  method  of  meeting  this  criti- 
cism, as  the  employer  is  the  one  who  benefits  by  the  low  level  of 
wages. 

Still  more  complicated  is  the  system  of  benefits.  Both  sys- 
tems combine  old-age  insurance  with  invalidity  insurance, 
though  the  invalidity  feature  in  the  German  system  is  very 
much  more  important  than  in  the  French  system.  In  addi- 
tion, the  French  system  carries  a  small  life  insurance  feature 
with  it,  and  the  German  new  act  has  tacked  on  a  widow 
and  orphan  insurance  system.  Finally,  for  administrative 
purposes  also,  the  German  system  includes  provision  for  de- 
layed cases  of  sickness;  and  from  the  standpoint  of  national 
health,  this  side  of  the  old-age  insurance  system  is  extremely 
important.  It  is,  of  course,  difficult  to  grasp  the  entire  picture 
at  once.  The  various  features  must  be  studied  separately,  the 
old-age  pensions,  as  the  basic  feature  of  the  system,  being  best 
taken  up  first. 

Here,  again,  there  is  a  considerable  difference  between  the 
German  and  the  French  systems.  The  German  system  pro- 
vides definite  old-age  pensions,  while  the  French  holds  on  to 
the  system  of  individual  accounts  and  pension  accumulations, 
developed  in  the  practice  of  voluntary  insurance. 

As  already  mentioned,  in  Germany  the  old-age  pensions  be- 
gin at  seventy.  The  original  French  act  of  1910  placed  the  age 
of  the  normal  pension  at  sixty-five,  but  for  the  purposes  of  over- 


COMPULSORY  OLD-AGE  INSURANCE          355 

coming  the  opposition  of  the  radical  labor  organizations,  it  was 
subsequently  reduced  (by  the  act  of  February  27,  1912)  to 
sixty;  and  this  difference  naturally  puts  the  French  system 
far  ahead  of  the  German  one  from  the  point  of  view  of  social 
welfare,  though  the  higher  German  age  limit,  as  will  be  ex- 
plained presently,  is  largely  mitigated  by  the  invalidity  con- 
siderations. The  German  old-age  pension  consists  of  two  por- 
tions: (1)  the  one  of  fifty  Marks  contributed  directly  by  the 
government  treasury,  and  (2)  the  amount  contributed  by  the 
Insurance  Institution  out  of  its'  funds  in  accordance  with  the 
wage-class. 


Class 
1    

Insni 
pen 
Marks 

60 

•ance 

sion 
Dollars 

14.28 
21.42 
28.56 
35.70 

42.84 

State 
subsidy 
Marks       Dollars 

50        11.90 
50        11.90 
50        11.90 
50        11.90 
50        11.90 

Total 
Marks        Dollars 

110        26.18 
140        33.32 
170        40.46 
200        47.60 
230        54.64 

2    

90 

3    

120 

4   

150 

5   . 

180 

In  actual  practice  the  pension  seldom  equals  exactly  one  of 
these  amounts,  for  a  worker  rarely,  if  ever,  remains  his  whole 
life  in  the  same  wage-class  and  in  the  computation  of  the 
actual  pensions  the  respective  length  of  service  in  the  various 
classes  is  taken  into  consideration,  so  that  the  old-age  pensions 
will  be  of  all  possible  amounts  between  110  and  230  Marks 
($26.18  and  $54.64). 

On  the  other  hand,  the  French  method  of  computing  the 
pension  is  technically  different  though  the  final  results  are 
approximately  the  same.  No  definite  pension  is  promised,  but 
each  premium  payment  carries  a  certain  pension  value  with 
it,  depending  upon  the  age  of  the  insured.  Instead  of  a  table 
of  definite  payments,  such  as  the  German  law  contains,  the 
French  government  has  published  an  estimate  of  probable 
pensions,  on  the  supposition  of  continuous  payments,  begin- 
ning at  a  certain  age. 

The  matter  of  the  transitory  period  will  be  taken  up  later. 
The  lower  part  of  the  table  shows  that  the  pension  obtainable 
is  entirely  a  result  of  the  number  of  contributions,  i.e.,  of  the 
age  when  the  insurance  starts.  If  it  be  begun  at  the  tender 
age  of  twelve  (when  employment  is  permitted  by  the  French 
law) ,  and  kept  up  continuously  till  sixty -five,  which,  after  all, 
is  an  unusual  condition,  pensions  of  400.19  francs  ($78.78) 


356 


SOCIAL  INSURANCE 


might  be  earned  by  the  male  employees  (only  $62.73  by  the 
females).  If,  however,  the  insurance  begins  at  forty,  the  pos- 
sible maximum  is  only  160.59  francs,  or  $30.99,  and  127.05 
francs,  or  $24.52.  The  law  being  compulsory,  and  most  wage- 
workers  beginning  their  employment  at  or  near  the  minimum 
age-limit  permitted  by  the  law,  it  is  reasonable  to  expect  that 
the  pensions  maturing  in  1960  will  be  near  the  maximum 
amounts.  On  the  other  hand,  for  all  the  fifty  years  up  to  that 
time,  the  pensions  will  be  very  much  smaller. 

PROBABLE  PENSIONS  UNDER  THE  FRENCH  SYSTEM  OF  COMPULSORY 
INSURANCE  AGAINST  OLD  AGE 


Age  at  beginning 
of  insurance 

Value  of  pensii  n 

Amount  of  state 
subsidy  included 

Male 

Female 

Francs 

Dollars 

Francs 

Dollars 

Francs 

Dollars 

Transitory  period 
64  

102.06 
103.69 
109.06 
118.64 
132.93 

160.59 
196.49 
239.78 
291.87 
330.07 
382.15 
408.19 

19.70 
20.01' 
21.05 
22.90 
25.66 

30.99 
37.92 
46.28 
56.33 
63.70 
73.75 
78.78 

101.38 
99.79 
100.04 
103.09 
109.29 

127.05 
150.99 
179.85 
214.58 
256.47 
299.02 
325.05 

19.57 
19.26 
19.31 
19.90 
21.09 

24.52 
29.14 
34.71 
41.41 
49.50 
57.71 
62.73 

100 
92 

82 
72 
62 

60 
60 
60 
60 
60 
60 
60 

19.30 
17.76 
15.83 
13.90 
11.97 

11.58 
11.58 
11.58 
11.58 
11.58 
11.58 
11.58 

60  

55  

50  

45     

Normal  period 
40  

35   

30 

25  

20  

15  

12  

The  table,  as  given  above,  is  based  upon  the  normal  retire- 
ment at  sixty-five,  as  provided  for  in  the  original  act  of  1910 ; 
and  a  government  contribution  of  60  francs.  While  the  act 
of  February  27,  1912,  has  increased  the  latter  to  100  francs, 
thus  increasing  the  pension  by  40  francs,  of  course  the  reduc- 
tion of  the  age  to  sixty  would  work  in  the  opposite  direction, 
bringing  it  down  approximately  to  the  same  amount. 

The  old-age  pension  remains,  after  all,   a  mere  pittance, 


COMPULSORY  OLD-AGE  INSURANCE          357 

even  in  France.  And,  in  justice  to  the  French  lawmakers,  be 
it  said  that  they  seem  to  have  recognized  it  fully,  for  an 
old-age  pension  obtainable  under  this  act  is  not  an  obstacle 
to  receiving  charitable  relief  (or  a  straight  government  pen- 
sion under  the  act  of  1905).  On  the  other  hand,  it  is  per- 
haps equally  fair  to  point  out  that  the  actuarial  value  of  an 
annuity  to  begin  at  the  age  of  sixty  is  very  much  greater 
than  that  beginning  at  seventy,  and  that  by  a  voluntary 
postponement  to  the  latter  age  the  pension  may  be  materially 
increased. 

In  both  countries  a  certain  length  of  insurance  is  required 
before  the  old-age  pension  is  earned.  In  Germany  1,200  weeks' 
contributions  must  be  made,  and  in  France  thirty  annual  con- 
tributions, which  on  the  assumption  of  forty  employed  weeks 
throughout  the  year  amounts  to  about  .the  same  time-limit. 
But  what  is  to  become  of  the  older  men  who  cannot  wait  thirty 
years  before  they  get  their  old-age  pensions  ?  In  other  words, 
while  the  system  of  old-age  insurance  is  based  upon  a  long 
payment  of  premiums,  what  does  it  offer  in  the  way  of  an  im- 
mediate solution  of  the  problem  of  old-age  relief?  The  prob- 
lem was  too  pressing  to  be  left  without  immediate  answer. 
And  the  immediate  availability  of  pensions  was  the  greatest 
argument  for  straight  non-contributory  pensions.  In  both 
countries,  therefore,  so-called  "  transitory  provisions  "  were 
introduced,  i.e.,  special  provisions  for  persons  of  such  an  age 
that  they  could  not  contribute  for  thirty  years  before  they 
reach  the  pensionable  age.  In  Germany,  since  the  amount  of 
old-age  pensions  is  definite,  the  privileges  of  transitory  provi- 
sion consisted  simply  in  making  a  reduction  of  forty  weeks  for 
each  year  of  age  over  forty  at  the  time  the  insurance  law 
went  into  effect. 

In  France  a  similar  rule  was  established  by  the  act  of  1910 
for  persons  over  thirty-five  years  old  when  the  law  goes  into 
effect,  and  by  the  act  of  February  27,  1912,  was  extended  to 
persons  over  thirty.  But  while  this  provision  will  enable 
the  older  men  to  get  their  pension  at  the  age  of  sixty,  it  would 
be  extremely  small  for  the  persons  of  older  age-groups.  The 
accumulations  during  a  few  years  would  be  very  small,  and  the 
larger  share  would  be  the  state  subsidy.  For  this  reason  the 
original  act  of  1910  not  only  waived  the  requirement  as  to 
length  of  insurance,  but  gave  larger  state  subsidies  to  the 


358  SOCIAL  INSURANCE 

older  persons,  which  are  indicated  in  the  lasc  table, — increas- 
ing the  normal  6  francs  subsidy  to  62  francs  in  case  of  persons 
over  forty-five  and  by  a  sliding  scale  of  2  francs  for  each  addi- 
tional year  of  age  to  100  in  case  of  sixty-four  years  of  age, 
when  only  one  year  of  insurance  was  to  precede  the  granting 
of  the  pension.  In  other  words,  the  inadaptability  of  the 
insurance  system  to  solve  the  immediate  problem  was  admitted, 
and  to  meet  this  difficulty,  what  is  very  nearly  a  sliding  scale 
straight  old-age  pension  was  introduced  as  a  temporary  meas- 
ure. The  complicated  provision  was  swept  aside,  however,  by 
the  latter  amending  act,  which  increased  the  government 
contribution  to  100  francs  for  all  assured. 

As  to  the  actual  amounts  of  the  pension  in  France,  only 
surmises  are  possible  at  present,  but  in  Germany  sufficient 
statistical  data  are  available.  The  average  amount  of  the 
pension  granted  has  been  slowly  but  persistently  rising.  In 
1891  it  was  only  $29.51,  but  even  in  1908  amounted  to  less  than 
$40  ($38.83).  It  now  equals  a  trifle  more  than  ten  cents  a 
day,  the  increase  being  due  primarily  to  the  increase  in  wages 
in  the  German  Empire. 

In  respect  to  invalidity  the  German  system  is  very  much 
more  comprehensive  than  the  French.  In  fact,  the  very  con- 
cepts of  invalidity  in  the  two  systems  are  quite  different. 
Under  the  French,  invalidity  is  defined  as  total  and  perma- 
nent disability  to  earn  a  living.  This  is  the  kind  of  invalidity 
which  results  from  a  definite  disease.  The  same  is  true  of  the 
new  British  National  Insurance  System,  which  is  often  said 
to  include  invalidity  as  well  as  sickness.  But  the  British 
act  speaks  of  "  disablement, ' '  which  makes  the  insured  "  in- 
capable of  work, ' '  under  which  total  disability  only  is  under- 
stood.3 In  both  the  French  and  the  British  systems,  therefore, 
only  total  invalidity  due  to  sickness  and  following  it,  is  in- 
cluded. Under  the  German  law,  on  the  other  hand,  reduction 
of  earning  capacity  to  one-third  of  the  normal  is  sufficient 
to  establish  invalidity.  This  may  be  the  result  of  disease,  but 
more  frequently  is  a  natural  result  of  advancing  old  age,  so 
that  the  German  concept  of  invalidity  is  almost  equivalent  to 
premature  old  age,  or  economic  old  age,  which  precedes  the 
physiological  stage.  This  breadth  of  interpretation  largely 

8  See  Carr,  Garrett,  and  Taylor:  National  Insurance,  London,  1912, 
p.  153. 


COMPULSORY  OLD-AGE  INSURANCE          359 

mitigates  the  high  seventieth-year  limit  for  normal  old-age 
pensions.  As  a  matter  of  fact,  out  of  140,000  pensions  granted 
in  the  German  system  in  1908,  only  11,000  were  for  normal 
old  age,  while  117,000  were  for  permanent  invalidity,  and  12,- 
000  for  sickness  (of  which  more  will  be  said  later).  During 
the  earlier  years,  old-age  pensions  predominated,  as,  naturally, 
the  benefits  of  the  system  were  extended  at  once  to  all  persons 
over  seventy.  But  of  all  pensions  in  force  in  1908,  which 
numbered  1,014,000,  only  102,000,  or  a  little  over  10#,  were 
old-age  pensions,  and  894,000  invalidity  pensions.  Through- 
out the  twenty  years  of  experience  the  proportion  of  in- 
validity pensions  has  been  constantly  growing,  showing  a 
tendency  to  begin  the  old-age  pension  at  an  earlier  age.  Thus, 
in  1895  old-age  pensions  constituted  35$;  in  1900,  14$,  and 
in  1908,  only  8$  of  all  pensions  granted.  The  situation  is 
partly  explained  by  the  greater  liberality  of  the  invalidity 
pensions.  An  invalidity  pension  may  be  obtained  after  200 
weeks  of  insurance,  even  though  only  100  weekly  contribu- 
tions were  made ;  or  after  500  weeks  of  insurance,  and  then 
entirely  irrespective  of  the  number  of  weekly  contributions. 
The  method  of  computing  the  pensions  is  rather  complicated. 
It  consists  of  three  essential  parts.  There  is  a  basic  pension 
somewhat  smaller  than  for  old-age  pensions,  and  there  is  the 
same  state  subsidy  of  50  Marks.  And,  in  addition,  there  is  a 
supplementary  amount  depending  upon  how  many  weekly 
premiums  the  applicant  has  paid.  These  amounts  are  shown 
in  the  following  table,  according  to  the  wage-groups: 

Supplementary 
amount  for  one 

Wage  Basic  State  week's  contri- 

groups  pension  subsidy  Total  bution 

Mks.    Dollars       Mks.    Dollars          Mks.    Dollars         Pfg.-      Cents 

1 60  14.28  50  11.90  110  26.18  3  0.7 

2 70  16.66  50  11.90  120  28.58  6  1.4 

3 80  19.04  50  11.90  130  30.94  8  1.9 

4 90  21.42  50  11.90  140  33.32  10  2.4 

5 100  23.80  50  11.90  150  35.70  12  2.9 

For  each  week's  contribution  made  during  the  insurance 
period  the  small  supplementary  amount  is  added  to  the  pen- 
sion. The  minimum  invalidity  pension,  therefore,  would  be 
110  Marks  ($26.18)  ;  but,  on  the  other  hand,  in  the  highest 
class,  with  a  1,000  or  1,200  contribution,  and  supplementary 


360  SOCIAL  INSURANCE 

amounts  of  12  pfenning  per  week,  the  total  supplementary 
amount  would  be  120  to  144  Marks,  and  the  total  pension 
270-300  Marks,  or  considerably  more  than  the  old-age  pension. 
As  a  result  there  is  every  incentive  for  persons  over  sixty  to 
apply  for  their  invalidity  pensions  earlier,  and  thus  straight 
old-age  pensions  are  rapidly  becoming  very  unpopular.  This 
is  often  quoted  in  Germany  by  some  opponents  of  social  insur- 
ance as  evidence  of  moral  depravity  on  the  part  of  the  German 
workingman.  As  a  matter  of  fact,  only  22$  of  the  invalid 
pensioners  obtained  their  pension  under  forty-five  years  of 
age,  and  by  forty-five  the  earning  capacity  of  a  modern  wage- 
worker  has  already  materially  declined.  In  any  case,  the  facts 
are  that  over  80$  of  the  pensions  are  granted  under  seventy, 
66$  under  sixty-five,  48$  under  sixty,  and  34$  under  fifty-five 
years  of  age.  As  a  matter  of  fact,  the  average  invalidity  pen- 
sion was  somewhat  larger  than  the  old-age  pension. 

As  compared  with  these,  the  French  provisions  for  in- 
validity are  very  meager.  Provision  for  invalidity  is  made 
in  two  different  ways,  first,  by  permitting  "  anticipated 
liquidation  of  pensions,"  and,  secondly,  by  special  subsidies 
in  total  disability.  By  anticipated  liquidation  is  meant  the 
following :  although  the  age  of  normal  retirement  is  compara- 
tively low  (sixty  years),  the  insured  is  permitted  to  demand 
the  beginning  of  his  pension  five  years  earlier,  i.e.,  at  fifty-five 
or  at  any  time  between  fifty-five  and  sixty.  But  in  such  cases, 
the  amount  of  pensions  will  be  correspondingly  reduced  on 
actuarial  principles,  for,  naturally,  the  present  value  of  a 
pension  of  $1  to  begin  at  once  at  the  age  of  fifty-five  is  very 
much  higher  than  the  value  of  a  pension  of  $1  to  begin  five 
years  later,  at  the  age  of  sixty.  Moreover,  the  state  subsidy 
is  to  be  reduced  accordingly,  in  cases  of  such  anticipated 
liquidation.  In  other  words,  it  is  to  be  accomplished  without 
any  additional  cost  to  any  one,  and,  therefore,  no  evidence  as 
to  invalidity  is  required. 

But  further,  persons  suffering  from  permanent  and  total 
disability  are  entitled  to  an  immediate  liquidation  of  their 
pensions,  irrespective  of  age,  on  the  same  principles  as  above, 
and  in  addition  to  special  invalidity  subsidies.  The  amount  of 
such  subsidies,  however,  is  not  fixed  in  the  law,  except  by 
establishing  maximum  limits,  but  is  left  to  special  regulations 
and  appropriations,  to  be  made  from  year  to  year.  The  limits 


COMPULSORY  OLD-AGE  INSURANCE          361 

are  that  the  state  subsidy  shall  not  exceed  60  francs.  The 
invalidity  problem  still  awaits  its  solution  in  France. 

Sickness  pensions  are  a  peculiar  feature  of  the  German  law ; 
they  are  granted  in  the  same  manner  as  invalidity  pensions, 
but  are  temporary  only,  as  they  represent  that  part  of  the 
invalidity  pension  scheme  which  dovetails  with  the  sick-insur- 
ance system ;  for  the  sick-insurance  funds  are  not  required  to 
grant  sick-benefits  beyond  twenty-six  weeks,  and  those  who 
need  longer  treatment  and  support  are  turned  over  to  the 
invalidity  institutions.  The  French  system  has  no  counter- 
part of  this  function.  In  the  new  British  insurance  act  this 
feature  is  combined  with  the  sick-insurance  organization,  and 
it  is  with  this  function,  and  not  with  the  invalidity  pensions 
proper,  that  the  permanent  disablement  feature  of  the  British 
insurance  system  should  be  compared. 

This  activity  of  the  invalidity  insurance  institutions  in 
connection  with  granting  of  sickness  benefits  is  of  utmost  im- 
portance from  the  point  of  view  of  prevention  of  invalidity 
and  conservation  of  national  health.  For  in  connection  with 
it  has  grown  up  a  magnificent  system  of  sanatoria  for  treat- 
ment of  the  working  class  for  chronic  diseases  such  as  no  other 
country  can  as  yet  boast  of,  and  which  Great  Britain  is  only 
beginning  to  imitate  in  virtue  of  the  new  act.  The  law  never 
forced  this  wide  activity  in  cure  of  diseases  and  prevention  of 
disability  upon  the  invalidity  insurance  institutes,  but  simply 
permitted  it  whenever  such  course  was  considered  advisable, 
as  a  saving  of  the  invalidity  pension.  But  here  an  ounce  of 
prevention  has  quickly  proven  its  worth.  Under  this  system 
the  invalidity  institutes  own  36  sanatoria  for  lung  diseases 
and  29  other  institutions  of  various  kinds,  with  a  total  capacity 
of  6,642  beds,  representing  an  investment  of  57,000,000  Marks. 
Nearly  87,000  persons  have  received  treatment  in  1908,  of 
whom  nearly  70,000  received  it  in  hospitals,  sanatoria,  and 
similar  institutions  for  a  period  of  over  4,000,000  days. 
Nearly  40,000  persons  received  such  treatment  for  pulmonary 
tuberculosis  alone,  and  the  official  reports  claim  that,  in  about 
80$  of  these,  disability  was  removed  because  the  disease  was 
early  taken  care  of. 

The  German  and  French  systems  differ  materially  in  their 
organization.  The  term  "  state  insurance  "  is  more  applicable 
to  the  German  conditions,  for  the  insurance  is  conducted  by  a 


362  SOCIAL  INSURANCE 

small  number  of  large  territorial  institutions,  known  as  '  *  Ver- 
sicherungs- Anstalten, ' '  thirty-one  in  number,  covering  the  en- 
tire country,  some  extending  to  an  entire  political  division 
of  the  Empire,  some  to  administrative  portions  of  a  political 
division;  in  addition  there  are  special  institutions  for  three 
branches  of  industry,  the  railroads,  mines,  and  navigation. 
The  purpose  of  establishing  these  latter  was  to  preserve 
existing  pension  institutions  and  permit  them  to  continue 
the  more  liberal  provision  for  old  age  which  they  had  been 
granting. 

In  France,  for  the  same  reason,  a  good  deal  more  latitude 
was  given  to  the  insured.  In  the  earlier  plans  one  central  old- 
age  insurance  was  contemplated,  but  there  was  a  great  deal  of 
criticism  of  such  centralization.  It  was  argued  that  such  a 
central  institution  with  the  enormous  funds  for  investment  at 
its  disposal  would  have  a  very  harmful  effect  upon  the  money 
market.  Later  schemes,  therefore,  proposed  series  of  territorial 
organizations.  Again  this  was  met  by  a  criticism — that  the 
numerous  mutual  organizations  of  workingmen  which  had 
been  developing  all  the  time  and  which  play  a  very  important 
part  in  the  life  of  the  French  workingmen,  would  be  ruined 
thereby.  These  conditions  were  taken  into  consideration  and 
the  law  of  1910  left  a  good  deal  of  latitude  as  to  the  institu- 
tions which  are  to  carry  on  the  insurance.  This  may  be  effected 
either  in  the  existing  national  old-age  retirement  fund,  or  by 
the  mutual  benefit  societies  or  unions  of  such,  or  by  private 
establishment  funds — or  new  departmental  funds  similar  to 
the  German  territorial  funds  to  be  established,  always  pro- 
vided, of  course,  that  a  strict  governmental  control  will  be 
exercised.  In  both  countries,  the  employers  as  well  as  the 
employees,  through  elected  representatives,  will  largely  influ- 
ence the  management. 

The  financial  aspect  of  measures  of  such  magnitude  must  be 
of  great  importance.  On  one  hand  is  the  cost  of  the  state 
subsidy.  That  was  a  problem  very  carefully  considered  in 
both  countries,  and  in  all  others  when  compulsory  old-age 
insurance  systems  were  discussed.  It  is  questionable  whether 
any  one  of  the  preliminary  estimates  will  come  very  near  the 
truth,  for  there  are  so  many  factors  of  uncertainty;  but  on 
mature  consideration,  the  results  of  such  errors  are  of  very 
little  consequence.  Once  these  state  subsidies  have  been  ac- 


COMPULSORY  OLD-AGE  INSURANCE          363 

cepted  as  permanent  factors  of  the  national  budget,  it  is  of 
no  more  importance  to  estimate  them  correctly  twenty  years 
in  advance,  than  to  estimate  now  the  probable  cost  of  the 
war  establishment  in  1945.  "  Sufficient  unto  the  day  are  the 
troubles  thereof.'7 

More  important,  however,  is  the  problem  of  the  financial 
stability  of  the  insurance  institutions,  i.e.,  a  proper  balancing 
between  income  and  benefits  granted,  so  that  the  latter  shall 
not  lead  -the  institutions  into  bankruptcy,  and,  on  the  other 
hand,  that  the  benefits  should  be  as  large  as  consistent  with 
the  premiums.  While  the  method  of  balancing  these  is  dif- 
ferent in  Germany  and  in  France,  yet  in  each  case  the  absolute 
accuracy  of  actuarial  computations  made  in  advance  cannot 
be  expected. 

The  possible  dangers  of  such  errors  are  provided  for  in 
both  countries  by  periodical  actuarial  audits  of  the  conditions 
of  the  insurance  institutions. 

Finally,  the  third  important  fiscal  problem  is  that  of  the 
proper  application  of  the  accumulated  reserve  funds.  Under 
a  system  of  old-age  insurance  such  accumulations  are  essential. 
They  were  often  criticised  as  decidedly  harmful,  and  as  con- 
stituting a  serious  objection  to  the  whole  old-age  insurance 
scheme,  though  no  one,  for  some  reason,  thinks  of  advancing 
this  argument  against  all  ordinary  life  insurance  where  the 
accumulations  are  still  greater.  The  specific  dangers  usually 
mentioned  were  the  depressing  effects  of  large  investments 
upon  the  money  market,  the  deprivation  of  productive  industry 
of  these  large  funds,  the  excessive  financial  power  of  the  ad- 
ministrators of  the  fund,  the  artificial  stimulus  to  government 
bonds,  in  which  these  funds  would  be  invested.  These  dangers 
are  met  partly  by  decentralization,  partly  by  providing  a  large 
list  of  authorized  securities  which  seldom  include  private 
industrial  stock,  to  be  sure,  as  the  same  criterions  of  safety 
must  be  applied  to  these  investments  as  to  other  insurance 
companies.  Thus,  the  German  law  authorizes  investments  in 
Imperial  bonds,  in  German  state  bonds,  guaranteed  railroad 
bonds,  bonds  of  communes,  village  bonds,  school  bonds,  real 
estate  mortgages,  savings-bank  deposits,  and  real  estate 
investments.  Similarly,  the  French  act  permits  invest- 
ments in  state  securities,  state  guaranteed  securities,  depart- 
mental, communal,  and  colonial  bonds,  securities  of  other 


364  SOCIAL  INSURANCE 

public  establishments,  real  estate  mortgages,  etc.  The  experi- 
ence of  the  German  system  has  demonstrated  that  state  and 
Imperial  bonds  constitute  a  small  and  decreasing  proportion 
of  investments  (16#  in  1900,  and  12#  in  1908),  while  the  bulk 
is  devoted  to  the  purchase  of  local  improvement  bonds  and  real 
estate  mortgage  investments.  It  was  proven  that  under  proper 
administration  and  legislation,  this  fiscal  feature  of  old-age 
insurance  may  become  an  important  factor  for  social  progress 
instead  of  a  danger,  if  this  fiscal  power  is  directed  into  socially 
desirable  channels.  Under  the  German  law,  the  institutes  are 
permitted  to  invest  up  to  one-half  of  their  reserve  in  enter- 
prises promoting  the  social  welfare  of  the  working  class.  The 
investments  which  would  come  under  this  classification  have 
increased  from  $47,000,000  in  1900,  to  $174,000,000  in  1908, 
and  they  are  classified  in  the  official  statistical  reports  as 
follows : 

(a)  Building  of  workmen's  dwellings,  homes  for  work- 
men, etc.,  $57,000,000. 

(b)  Aid  to  agriculture,  such  as  land  mortgages,  branch 
railroads,  road  improvements,  stock-raising,  etc.,  $23,000,000. 

(c)  Building  of  hospitals,  convalescent  institutes,  sana- 
toria,  homes   for   the   blind,    etc.,   building  of   slaughter- 
houses, water-works,  sewers,  etc.,  $81,000,000. 

(d)  Building  of  institutions  for  use  of  invalidity  insur- 
ance, such  as  hospitals,  sanatoria,  tuberculosis  institutes,  etc., 
$13,000,000. 

Similarly,  the  French  act  specifically  authorizes  investments 
in  loans  to  various  institutions  of  social  providence  or  social 
hygiene,  and  societies  for  the  construction  of  cheap  dwellings. 
And  it  is  not  at  all  a  negligible  function  of  the  old-age  insur- 
ance system  that  hundreds  of  millions  of  dollars,  the  accumu- 
lations of  and  for  the  working  class,  may  be  utilized  in  further- 
ing its  interests.  Granted  sufficient  self-government  in  these 
institutes,  one  may  expect  eventually  to  see  a  part  of  these 
reserves  utilized  in  encouraging  the  co-operative  activity  of 
the  wage-working  class,  and  thus  influencing  the  entire  stand- 
ard of  life  of  the  wage-worker. 

Numerically,  the  results  of  the  German  old-age  insurance 
system  are  imposing.  The  estimated  number  of  persons  in- 
sured is  15,250,000,  or  24$,  of  the  population.  The  figures  of 
receipts  and  expenditures  are  enormous.  In  1908  the  receipts 


COMPULSORY  OLD-AGE  INSURANCE          365 

equaled  $68,000,000  and  the  expenditures  nearly  $48,000,000, 
while  the  reserve  funds  reached  the  sum  of  $354,000,000.  Of 
the  receipts,  the  employers  and  employees  contributed  $22,- 
000,000  each,  or  over  30$,  while  the  government  subsidies 
amounted  to  $12,000,000,  or  less  than  20$,  and  the  interest  to 
$12,000,000,  so  that  practically  the  employees  contributed  30 
cents  on  each  dollar.  Of  the  expenditures,  only  $4,500,000,  or 
less  than  10$,  went  for  administrative  expenses,  a  truly  re- 
markable average  for  an  old-age  insurance  institution.  This 
included  such  items  as  collections  and  verification  of  dues, 
determination  of  compensation,  arbitration  of  disputes,  and 
all  other  administrative  expenses. 

The  cost  of  administration  is  continually   declining.     In 

1891  it  amounted  to  20.3$,  in  1895  to  12.5$,  in  1900  to  10.8$, 
in  1905  to  8.6$,  and  in  1908  to  9.2$.     Of  the  total  expense 
for  benefits  $31,638,000,  or  73$,  went  for  invalidity  pensions, 
and  only  9$  for  old-age   pensions.     The  medical   expenses 
alone  amounted  to  $4,480,000,  or  over  10$. 

The  total  number  of  pensions  granted  during  one  year  in 

1892  was  about  60,000,  and  in  1908,  140,000,  and  the  number 
of  pensioners  receiving  pensions  in  1908  was  over  1,000,000, 
of  whom  only  about  100,000  were  receiving  old-age  pensions, 
and  some  185,000  sickness  pensions.     The  average  amount  of 
pensions,  as  has  already  been  stated,  was  $38  to  $40. 

In  France,  the  system  has  been  introduced  so  very  recently 
that  little  statistical  information  is  as  yet  available.  It  is  well 
known  that  the  radical  portion  of  the  French  working  class 
found  serious  fault  with  the  entire  system.  Not  only  did  it 
object  to  the  compulsory  contributions  exacted  from  the  work- 
ingmen,  but  was  inclined  to  consider  the  whole  scheme  a  capi- 
talistic bait  for  the  suppression  of  a  revolutionary  labor  move- 
ment. The  Confederation  Generale  du  Travail,  representing 
the  syndicalist  branch  of  the  French  labor  movement,  inaugu- 
rated an  energetic  campaign  of  obstruction,  which  was  only 
partly  neutralized  by  the  agitation  of  the  socialist  party  in 
favor  of  accepting  the  law. 

Oddly  enough,  the  obstructionist  policy  of  the  syndicalists 
was  not  without  its  positive  constructive  results,  in  that  it 
hastened  the  adoption  of  the  amending  act  of  February  27, 
1912,  the  two  most  important  provisions  of  which  were,  the 
reduction  of  the  annual  age  of  retirement  from  sixty-five  to 


366  SOCIAL  INSURANCE 

sixty,  and  the  increase  of  the  governmental  contribution  from 
60  francs  to  100  francs. 

The  other  effects  were  perhaps  less  desirable.  As  the  in- 
auguration of  the  insurance  of  each  individual  case  in  a 
measure  depended  upon  the  co-operation  of  the  person  to  be 
insured,  the  propaganda  of  obstruction  materially  interfered 
with  the  application  of  the  law.  An  unexpected  difficulty 
developed  as  a  result  of  several  judicial  decisions  to  the  effect 
that  while  the  employer  was  under  obligation  to  pay  his 
share  of  the  weekly  dues,  there  was  no  provision  in  the  law 
compelling,  or  even  permitting  him  to  exact  the  workingman  's 
share  from  his  wages. 

Under  such  conditions,  the  resistance  of  the  syndicalists  was 
very  effective  indeed.  While  the  total  number  of  persons 
to  be  insured  under  the  compulsory  provisions  was  estimated 
at  some  10,000,000  or  12,000,000,  the  number  of  persons  in- 
scribed on  the  rolls  according  to  the  requirements  of  the 
regulations  issued  by  the  Government  in  June,  1911,  i.e.,  one 
month  before  the  law  went  into  effect,  was  4,620,152,  of  which 
only  1,349,714  names  were  presented  voluntarily.  By  the 
first  of  October,  1911,  the  names  inscribed  reached  6,188,941, 
of  which  the  voluntary  inscriptions  amounted  to  2,136,160, 
while  the  income  from  the  sale  of  the  stamps  indicated  about 
1,344,000  actively  complying  with  the  requirements  of  the  law. 

Thus,  the  extent  of  the  application  of  the  compulsory  and 
nearly  universal  law  was,  for  a  time,  very  discouraging  in- 
deed. The  latest  information  indicates,  however,  that  the  some- 
what childish  opposition  of  the  workmen  is  gradually  vanish- 
ing. On  January  1, 1913,  the  total  number  of  insured,  accord- 
ing to  the  report  of  the  Ministry  of  Labor,  reached  7,854,132,  of 
which  776,782,  or  nearly  10$,  were  inscribed  under  the  optional 
provisions  of  the  law.  The  monthly  income  from  the  sale  of 
stamps  increased  from  1,172,000  francs  in  the  summer  of  1911, 
to  4,300,000  towards  the  end  of  1912,  while  the  expected  sale 
under  a  complete  compliance  with  the  law  would  have  been 
about  15,000,000  francs.  An  estimate  may,  therefore,  be  made 
that  about  one-third  of  the  French  workmen  are  actively  com- 
plying with  the  law  one  and  a  half  years  after  it  went  into 
force.  Proposals  are  up  for  necessary  amendments  of  the  act, 
to  make  a  general  compliance  automatic. 


CHAPTER  XXIII 
NON-CONTRIBUTORY  OLD-AGE  PENSIONS 

COMPULSORY  insurance,  which  grew  out  of  voluntary  insur- 
ance, simply  meant  the  extension  of  a  system  in  which  few 
benefited,  to  the  entire  working  class.  The  principle  of  em- 
ployers' contributions  which  was  admitted  all  through  the 
discussion  of  Compulsory  Old- Age  Insurance  to  be  an  essential 
principle  of  the  system,  was  adopted  as  a  demand  of  justice ; 
it  was  a  price  which  industry  was  forced  to  pay  to  solve  for 
itself  the  problem  of  superannuation,  which  was  a  growing 
impediment  to  industrial  efficiency. 

But,  in  addition,  all  existing  forms  of  compulsory  working- 
men  's  insurance  against  old  age  embody  a  state  subsidy,  which, 
considered  by  itself,  is  a  straight  governmental  old-age  pension. 
The  justification  of  this  contribution  from  the  state  treasury 
was  found,  not  only  in  the  need  of  the  working  class  and  in- 
ability to  obtain  a  satisfactory  old-age  pension  by  its  own 
efforts,  but  also  in  the  expected  relief  of  the  financial  burden 
which  the  state  hitherto  carried  for  purposes  of  old-age  poor- 
relief.  Whether  compulsory  old-age  insurance  has  as  yet  suc- 
ceeded in  reducing  this  burden  of  poor-relief  is  a  point  which 
need  not  be  discussed  at  this  particular  moment.  But  there 
is  no  doubt  of  the  historic  connection  between  poor-relief,  ad- 
mitted as  a  right  of  the  poor  or,  at  least,  as  a  duty  of  the 
state  and  the  state  'a  contribution  to  compulsory  old-age  insur- 
ance. 

This  logical  and  historical  connection  becomes  still  more 
prominent  when  the  so-called  transitory  provisions  of  German 
or  French  compulsory  insurance  law  are  examined.  It  was 
shown  that  the  great  drawback  of  a  compulsory  insurance  sys- 
tem in  case  of  old  age  is  its  inability  to  cope  with  the  imme- 
diate problem,  because  a  long  term  of  years  is  necessary  before 
the  system  may  work  itself  out.  In  order  to  meet  this  diffi- 
culty, all  compulsory  insurance  systems  or  plans  provide  for 
a  material  increase  of  state  benefits  in  cases  of  those  men  or 

367 


368  SOCIAL  INSURANCE 

women  who  must  reach  the  pensionable  age  in  the  immediate 
future,  so  that  for  those  workmen  who  are  sixty  years  or  over 
at  the  time  the  law  goes  into  effect,  their  pension  is  practically 
all  a  state  pension,  and  the  element  of  their  own  contributions 
and  their  employer's  contributions  is  quite  insignificant. 
Thus,  while  in  principle  the  compulsory  insurance  system  and 
the  state  pension  system  are  quite  contradictory,  yet  in  prac- 
tice they  merge  one  into  the  other.  On  the  basis  of  this  the 
argument  has  even  been  advanced  that  there  is  no  essential 
difference  between  the  contributory  insurance  system  and  the 
straight  pension  system ;  that  as  the  cost  of  a  straight  pension 
system  must  be  obtained  from  general  taxation  and  ultimately 
must  come  from  the  national  income,  which  is  created  by 
human  labor,  the  workingmen,  as  a  class,  must  be  considered 
as  contributing  to  the  cost  of  this  old-age  pension.  While,  in 
a  broad  sociological  sense,  this  is  undoubtedly  true,  neverthe- 
less, the  differences  in  the  application  of  the  two  systems  are 
so  great  that  perhaps  more  is  lost  than  gained  in  such  a  con- 
fusion of  terms. 

We  may  pass  over  with  brief  mention  the  various  systems, 
almost  universal  in  civilized  countries,  for  granting  straight 
pensions  to  government  employees,  a  subject  itself  of  large  and 
growing  importance  because  of  the  rapid  development  not  only 
of  governmental  activities,  but  also  industrial  activities  of 
the  modern  state.  Many  pension  systems  exist  not  only  for 
the  military  establishments  but  also  for  the  civil  employees, 
and,  finally,  for  the  industrial  employees  of  European  gov- 
ernments. But  the  question  of  government  pensions  to  its 
own  employees  is  essentially  different  from  government  pen- 
sions to  workmen  in  general,  because,  in  the  first  instance,  the 
government  stands  in  a  dual  capacity  towards  the  applicant 
for  pensions,  not  so  much  that  of  the  government  as  of  an 
employer,  and  the  problem  approaches  that  of  establishment 
funds  of  large  proportions.  In  the  discussion  of  straight 
governmental  pensions  the  government  must  be  eliminated  as 
employer,  and  it  must  be  considered  simply  as  the  central 
governmental  fiscal  authority.  The  following  are  the  countries 
possessing  such  systems:  Denmark  since  1891,  New  Zealand 
since  1898,  Belgium  (as  a  temporary  measure)  since  1900, 
France  since  1907,  Australia  since  1908,  and  Great  Britain 
since  1908.  In  justice  to  the  Australian  Commonwealth,  it 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     369 

must  be  stated  that  long  before  the  Commonwealth  had  estab- 
lished its  old-age  pension  system  (in  fact,  long  before  the  Com- 
monwealth of  Australia  had  been  organized),  several  systems 
had  been  organized  in  Australian  colonies,  namely,  that  in  New 
South  Wales  in  1900,  in  Victoria  in  1901.  Thus,  the  system  of 
straight  old-age  pensions  seems  to  be  ahead  of  that  of  com- 
pulsory insurance  in  popularity.  The  straight  old-age  pension 
plan  owes  its  comparative  popularity  in  the  United  States 
primarily  to  the  British  plan,  only  recently  put  into  existence ; 
while,  on  the  other  hand,  for  nearly  twenty-five  years,  Ger- 
many remained  the  only  example  of  a  national  compulsory 
old-age  system. 

France  presents  the  unique  example  of  the  combination  of 
the  two  systems,  and  the  significance  of  this  combination  will 
be  touched  upon  presently.  Perhaps  it  is  not  out  of  place 
to  point  out  that  since  the  German  system  is  primarily  a  system 
of  invalidity  insurance,  and  since  Great  Britain  only  a  few 
months  ago  introduced  its  system  of  compulsory  invalidity 
insurance  in  connection  with  sickness  insurance,  Great  Britain 
also  may  be  considered  as  combining  the  two  principles  and 
that,  therefore,  to-day  one  cannot  speak  of  the  sharp  antago- 
nism between  the  two  principles  which  was  presumed  to  exist 
in  1908. 

The  first  system  of  straight  old-age  pensions  established  in 
Denmark  by  the  act  of  April  9,  1891,  showed  its  very  close 
connection  with  the  system  of  national  poor-relief.  Because 
of  the  small  size  of  the  country,  comparatively  little  attention 
was  paid  to  that  experiment  in  other  countries,  and  especially 
in  the  United  States,  for  many  years,  until  the  British  law 
had  emphasized  the  importance  of  the  system.  The  official 
title  of  the  Danish  act,  which  reads  ' '  Law  concerning  old-age 
support  for  the  worthy  poor  aside  from  poor-relief, ' '  embodies 
two  important  points :  first,  that  it  evidently  grew  out  of  poor- 
relief,  and,  second,  that  it  was  just  as  evidently  meant  to  be 
distinct  from  poor-relief.  It  was  intended  to  be  a  system  of 
outdoor  relief,  while  poor-relief  frequently  is  institutional. 
And  most  important  of  all,  it  was  intended  to  free  the  recipient 
of  this  form  of  relief  from  the  various  disqualifications,  both 
legal  and  moral,  which  poor-relief  inevitably  carries  in  all 
countries.  It  was  an  admission  that  an  honest  workingman, 
disabled  in  his  declining  years,  was  entitled  to  support  with- 


370  SOCIAL  INSURANCE 

out  being  classified  as  a  pauper,  without  losing  his  rights  as 
a  citizen,  and  without  suffering  the  loss  of  caste  which  the 
poor-relief  necessarily  carries  with  it.  Practically  the  same 
arguments  were  advanced  in  other  countries  which  followed 
this  system. 

The  historical  connection  between  poor-relief  for  the  aged 
and  straight  pensions  is  especially  clear  in  the  case  of  France, 
whose  enactment  of  a  pension  system,  very  little  known  in 
the  United  States,  preceded  that  of  Great  Britain  by  three 
years. 

Though  many  efforts  at  the  solution  of  the  old-age  problem 
by  various  schemes  of  voluntary  insurance  were  made  in 
France,  culminating  in  the  direct  grant  of  subsidies  in  1895, 
yet  even  the  government  did  not  put  much  faith  in  the  efficacy 
of  this  measure,  as  is  shown  by  the  fact  that  in  the  very  same 
year  Parliament  demanded  the  granting  of  old-age  benefits 
to  worthy  poor.  In  1897,  therefore,  a  small  appropriation  of 
less  than  600,000  francs  was  made  for  the  purpose  of  sub- 
sidizing such  communes  as  would  be  willing  to  grant  sys- 
tematic outdoor  relief  to  its  aged  poor.  This  experience  was  a 
flat  failure,  as  within  ten  years  the  number  of  persons  receiv- 
ing aid  did  not  exceed  25,000  and  the  appropriation  made  by 
the  state  treasury  was  never  exhausted.  In  1905  the  govern- 
ment was  forced  to  adopt  what  practically  amounts  to  a  system 
of  straight  pensions  under  official  designation  of  ' '  obligatory 
relief  to  indigent  age,  infirm,  and  incurable  persons. " 

The  best-known  old-age  pension  system,  and  the  most  com- 
prehensive, is  that  of  Great  Britain,  where  the  system  of 
poor-relief  for  the  aged  has  reached  its  highest  development. 

Here  the  system  of  old-age  pensions  was  finally  established 
by  the  law  of  August  1,  1908,  and  went  into  effect  on  January 
1,  1909,  but  thirty  years  of  active  agitation  preceded  this  law. 
The  gravity  of  the  problem  of  old-age  relief  in  Great  Britain 
is  well  known.  In  no  country  had  the  industrial  revolution 
of  the  nineteenth  century  been  so  rapid  and  so  thorough,  and 
perhaps  in  no  country  did  it  have  such  a  destructive  influence 
as  in  Great  Britain.  For  centuries,  this  country  struggled 
with  its  problem  of  pauperism  until  it  produced  a  working 
class  which  looked  forward  to  spending  its  declining  years  in 
a  poorhouse  as  a  natural  reward  for  a  life  of  toil. 

The  movement  in  Great  Britain  started  with  the  publication 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     371 

of  proposals  by  private  individuals  familiar  with  the  questions 
of  poor-relief.  Frankly,  the  proposals  had  in  view  the  situa- 
tion of  those  already  in  the  clutches  of  pauperism  rather  than 
a  method  of  prevention  of  poverty. 

For  two  decades,  no  less  than  five  public  commissions  investi- 
gated the  problem  of  old-age  relief  and  the  struggle  was  long 
and  persistent  between  the  two  methods  advanced — that  of 
compulsory  insurance  and  straight  pensions.  Several  commis- 
sions reported  adversely  primarily  on  the  grounds  of  fiscal 
difficulties,  but  the  situation  was  such  in  Great  Britain  that 
the  argument  against  the  need  of  some  drastic  measure  could 
not  seriously  be  made.  And  it  was  undoubtedly  this  con- 
sciousness of  the  immediate  pressure  of  the  problem  that 
finally  swung  the  pendulum  in  favor  of  a  straight  old-age 
pension.  It  is  perhaps  significant  that  it  was  the  same  Lloyd 
George,  the  author  of  the  recent  law  concerning  compulsory 
sickness  and  invalidity  insurance,  who  only  three  or  four 
years  ago  was  an  ardent  adherent  of  the  straight  pension 
plan. 

In  short,  wherever  the  straight  old-age  pension  was  adopted, 
the  line  of  reasoning  at  least  (if  not  the  underlying  economic 
problem)  was  somewhat  different  from  that  of  the  compulsory 
insurance  schemes — it  proceeded  from  poor-relief  much  more 
than  from  the  fact  of  voluntary  insurance. 

One  advantage  of  the  straight  government  pensions  systems, 
which  must  be  readily  admitted,  is  their  extreme  simplicity, 
especially  when  compared  to  the  bewildering  complexity  of 
either  the  German  or  French  old-age  insurance  acts.  The 
reason  for  this  is  evident  when  it  is  remembered  that  a  straight 
pension  system  provides  only  for  the  distribution  of  money, 
usually  in  definite  amounts,  under  certain  conditions,  and  the 
enumeration  of  these  qualifying  conditions  is  almost  all  that 
the  law  contains. 

The  crucial  question  is,  to  whom  shall  pensions  be  given? 
Of  course,  there  is  the  age  qualification,  but  theoretically 
that  is  of  secondary  importance.  If  the  pension  is  to  begin 
at  seventy,  rather  than  sixty-five,  five  years'  more  waiting  is 
necessary.  But  who  may  reasonably  expect  it?  In  the  old- 
age  insurance  system  there  can  be  no  doubt  on  the  subject. 
The  exact  limits  of  application  of  the  law  must  be  known  for 
years  before  a  pension  is  applied.  Such  definiteness  is  evi- 


372  SOCIAL  INSURANCE 

dently  both  unnecessary  and  impossible  in  the  case  of  straight 
old-age  pensions. 

The  first  question  that  arises  is :  Shall  there  be  any  limita- 
tions at  all,  except  those  of  age  ?  At  the  first  glance  the  ques- 
tion may  sound  preposterous :  as  the  main  purpose  of  the  old- 
age  pension  is  to  relieve  old-age  distress,  what  possible  excuse 
can  there  be  for  granting  a  straight  old-age  pension  except  to 
those  who  need  ?  What  reason  can  there  be  for  granting  this 
pension  to  the  retired  merchant  or  banker? 

Nevertheless,  universal  pensions  were  very  seriously  advo- 
cated both  in  England  and  in  the  United  States.  It  was  argued 
in  favor  of  such  seemingly  useless  prodigality,  that  only 
by  such  means  can  the  essential  nature  of  an  old-age  pension 
be  kept  free  from  contamination  by  any  semblance  to  chari- 
table relief  for  paupers  and  all  odium  from  receiving  such  pen- 
sions be  done  away  with.  Only  then  would  the  granting  of  a 
pension  be  possible  without  any  inquisitorial  investigation  into 
the  private  means  of  the  aged.  But  the  evident  extravagance 
of  such  a  plan  was  too  apparent  to  be  dispensed  with  easily. 
It  was  argued,  therefore,  that  the  well-to-do  would,  of  their 
own  free  will,  refrain  from  applying  for  pensions.  Yet, 
curiously  enough,  the  advocates  of  universal  pensions  were 
forced  to  suggest  such  indirect  methods  as  distribution  of  the 
pension  money  under  unpleasant  conditions,  to  a  long  waiting 
line,  in  all  sorts  of  weather,  in  obscure  parts  of  the  city,  in 
order  to  eliminate  those  who  had  no  real  need  of  the  pension. 
Thus,  the  "  worthy  poor  "  would  suffer  together  with  the 
"  greedy  rich."  But  these  appeals  for  a  universality  of  this 
kind  belong  to  a  historical  stage  which  has  passed,  and  in  all 
acts  definite  limitations  are  contained. 

The  formula  of  the  first  pension  act,  that  of  Denmark,  has 
been  accepted  by  all  the  acts  enumerated — in  spirit,  if  not  in 
letter — the  "  deserving  poor  "—those  are  the  only  ones  to 
whom  a  pension  is  granted.  Thus,  all  the  limitations  in  the 
acts  are  directed  towards  two  concepts:  (1)  the  "  deserving  " 
and  (2)  "  the  poor." 

The  "  deserving  ":  The  qualifications  under  this  head  are 
usually  of  two  kinds,  either  civic  (or  political)  or  moral. 
Citizenship  is  a  universal  requirement  of  a  straight  old-age 
pension,  although  not  in  old-age  insurance.  Old-age  pensions 
are  not  granted  to  aliens.  Combined  with  this  qualification, 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     373 

there  is  usually  a  similar  one  for  a  definite  length  of  residence 
and  sometimes  one  for  a  definite  length  of  citizenship. 

Thus,  as  far  as  residence  is  concerned,  Great  Britain  re- 
quires twenty-five  years ;  Australia,  twenty  years  (reduced  from 
twenty-five  years  in  August,  1909)  ;  New  Zealand,  twenty-five 
years.  No  definite  period  of  residence  is  prescribed  in  France, 
but  the  extreme  difficulty  of  naturalization  makes,  perhaps, 
such  qualification  unnecessary.  In  Denmark,  the  problem  of 
the  alien  hardly  exists;  in  Belgium  only  one  year's  residence 
is  required  and  again  the  naturalization  requirements  are  diffi- 
cult. In  addition,  in  Australia,  three  years'  citizenship  are 
required,  and  in  Great  Britain  the  requirements  are  severest, 
being  twenty  years'  continuous  citizenship  as  well  as  residence. 

It  seems  worth  while  to  indicate  these  limitations  because, 
with  the  exception  of  Denmark,  all  the  countries  having 
governmental  old-age  pension  systems  are  also  countries  of 
immigration — some  more  than  others,  but  even  in  France  and 
to  some  extent  in  Belgium  the  influx  of  immigrant  labor  from 
eastern  and  southern  Europe  is  a  growing  phenomenon.  In 
the  opinion  of  the  legislators,  this  has  evidently  justified  the 
severe  residence  requirements,  so  as  to  prevent  the  dumping 
of  the  pauper  population  of  other  countries.  But  it  evidently 
leaves  a  wide  gap  in  the  efficacy  of  the  law,  for  the  strictest 
requirements  of  that  nature  will  not  influence  the  current  of 
immigration  very  much,  and  yet  the  immigrant  population 
will  necessarily  give  its  quota  of  deserving  (or  non-deserving 
but  equally  needy)  aged  poor. 

The  list  of  moral  qualifications  is  even  more  formidable. 
The  French  act  seems  to  be  the  only  one  which  has  no  refer- 
ence to  the  moral  character  of  the  prospective  pensioner.  The 
Australian  act  directly  specifies  the  requirement  of  "  good 
character  "  and  that  of  New  Zealand  "  good  moral  char- 
acter, ' '  but  in  addition,  these  and  the  other  acts  contain  other 
requirements  very  much  more  specific. 

The  most  important  of  these  is  freedom  from  a  criminal 
record,  though  this  may  not  be  absolute.  In  Great  Britain,  a 
prison  sentence  disqualifies  for  ten  years;  in  New  Zealand, 
from  twelve  to  twenty-five  years,  according  to  whether  it 
was  a  short  or  a  long  sentence.  In  Denmark,  the  disqualifica- 
tion is  permanent  unless  a  pardon  has  been  obtained.  Wife 
(or  husband)  desertion  within  four  years  before  application 


374  SOCIAL  INSURANCE 

for  pension  is  sufficient  to  disqualify  both  in  Australia  and 
New  Zealand;  also  neglect  of  one's  children  under  fourteen 
years.  Considering,  however,  that  persons  over  sixty -five  years 
are  concerned,  these  requirements  cannot  work  hardships  in 
many  cases.  Habitual  inebriety  is  specifically  mentioned  in 
the  acts  of  Great  Britain  (where  it  may  be  reason  for  dis- 
qualifying for  ten  years),  of  New  Zealand,  where  a  sober  and 
reputable  life  for  at  least  five  years  is  demanded. 

The  economic  qualifications  are  also  of  a  twofold  character. 
On  one  hand,  the  applicant  must  be  poor ;  on  the  other  hand, 
he  must  not  be  (or  at  least,  have  been)  a  pauper.  In  this  re- 
spect even  the  British  act  was  fairly  liberal :  while  the  appli- 
cant must  not  be  in  receipt  of  poor-relief,  there  were  some 
forms  of  charitable  assistance  which  were  not  to  be  considered 
poor-relief,  such  as  medical  aid,  or  burial  aid  for  death  of  de- 
pendent. But  these  disqualifications  arising  from  pauperism 
became  void  in  1911,  and  an  amendment  of  the  act  in  1911 
further  liberalized  the  conditions  of  eligibility  to  the  pension, 
resulting  in  a  material  increase  of  the  number  of  pensioners. 
In  the  Danish  system,  conviction  for  mendicancy  or  vagrancy 
for  five  years  previously  is  sufficient  to  disqualify,  the  period 
having  been  reduced  from  ten  years  in  May,  1908. 

Still  more  definite  are  the  restrictions  as  to  establishing 
the  existence  of  need.  Of  all  the  limitations  of  the  extent 
of  application  of  a  pension,  this  is  the  most  important,  as 
it  excludes  a  very  large  proportion  of  the  persons  of  the  age- 
groups  concerned.  Of  these  restrictions,  the  more  important 
is  that  concerning  the  amount  of  income  permitted;  less  so 
is  the  limitation  of  the  ownership  of  property.  These  limita- 
tions naturally  vary  much  in  proportion  to  the  local  conception 
of  a  minimum  standard.  The  highest  standard  is  found  in 
Australian  countries.  No  one  may  receive  a  pension  who 
enjoys  an  income  of  £52  in  Australia  (£1  a  week  or  $5),  and 
£60  ($300)  in  New  Zealand.  In  Great  Britain  the  permitted 
revenue  must  not  exceed  £31  10s.,  or  about  $157.50  per  annum, 
or,  roughly,  $3  per  week.  In  France,  the  permitted  amount  is 
much  less — 480  francs,  or  $92.64,  while  in  Denmark,  only 
100  kroner,  or  $26.80,  may  be  disregarded.  Under  the  tempo- 
rary scheme  in  Belgium,  a  revenue  of  360  francs  for  single 
persons,  and  600  francs  for  married  persons,  was  per- 
mitted. 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     375 

In  addition,  limitations  as  to  the  value  of  property  owned, 
are  found  in  several  acts,  which  are  somewhat  narrower  than 
the  income  permitted.  Logically,  the  necessity  for  such  fur- 
ther restrictions  is  apparent,  otherwise,  it  would  be  to  the 
interest  of  the  aged  person,  and  especially  of  his  prospective 
heirs,  that  he  invest  his  property  in  the  least  income-bearing 
securities,  so  as  to  come  within  the  law.  Yet  it  surely  cannot 
be  the  object  of  a  governmental  pension  plan  to  preserve  the 
ample  savings  of  aged  people  for  the  benefit  of  their  able- 
bodied  and  grown-up  children.  To  prevent  this  contingency, 
a  limit  is  placed  upon  the  value  of  accumulated  property 
which  may  be  held  without  disqualifying  the  owner  from  pen- 
sion. In  New  Zealand  the  limit  is  £260  (about  $1,300),  and  in 
Australia,  £310  ($1,550). 

Important  as  are  all  these  requirements,  theoretically,  the 
one  which  definitely  determines  the  sphere  of  activity  of  a 
pension  act  is  the  economic  qualification  contained  in  the 
maximum  income.  The  other  qualification  is  that  of  age. 
Here,  too,  a  wide  variation  is  observable.  The  British  and 
French  pension  systems  (until  1910)  have  a  very  high  age 
limit  of  seventy;  New  Zealand  and  Australia,  as  well  as  the 
Australian  colonies,  before  the  act  for  the  entire  Common- 
wealth was  adopted,  began  their  pensions  at  sixty-five  (as 
did  Belgium  under  its  temporary  provision),  and  Denmark  be- 
gins its  old-age  relief  at  the  earliest  age  of  sixty.  It  is  neces- 
sary to  add  that  at  least  in  two  countries,  Australia  and 
France,  the  pension  provisions  are  extended  to  invalids,  ir- 
respective of  age,  provided  incapacity  may  be  definitely  es- 
tablished. 

That  the  age  limit  of  seventy  is  entirely  too  high  has  been 
argued  frequently  and  may  be  readily  admitted.  Not  only 
does  it  materially  interfere  with  the  popularity  of  the  system, 
in  that  few  workmen  expect  to  survive  to  that  advanced  age, 
and  fewer  care  to  worry  about  the  age,  but  there  is  the  more 
weighty  material  consideration  that  the  conditions  which  make 
for  old-age  dependency  become  operative  much  before  the  age 
of  seventy,  and  that  the  problem  of  prevention  of  poverty 
and  pauperism  is  met  less  than  half-way  by  this  limitation. 
The  only  objection  argued  against  the  lowering  of  the  age  limit 
is  the  fiscal  one,  the  excessive  burden  to  the  national  treasury. 
But  it  can  scarcely  be  doubted  that  the  extension  of  the  old- 


376  SOCIAL  INSURANCE 

age  pension  to  sixty-five  in  Great  Britain  is  a  question  of  time 
only. 

As  to  the  amount  of  pension,  two  tendencies  are  observ- 
able; some  laws  establish  a  well-defined  amount,  uniform  to 
all,  or  at  least  uniform  under  uniform  economic  condition; 
e.g.,  providing  a  sliding  rule  of  pensions  in  accordance  with 
income.  Other  acts  permit  adjustment  to  individual  cases, 
with  certain  latitude  to  the  judgment  of  the  administrative 
officers.  In  that,  they  differ  radically  from  the  compulsory  old- 
age  insurance  acts,  where  the  amount  granted  depends  upon 
definite  extraneous  conditions  and  not  the  status  of  the  pen- 
sioner at  the  time  the  pension  matures. 

The  earliest  pension  act,  that  of  Denmark,  adopted  the  latter 
of  the  two  tendencies.  There  is  no  definite  rate  of  old-age  pen- 
sions. The  law  simply  provides  that  "  relief  must  be  suffi- 
cient for  the  support  of  the  person  relieved  and  for  his  family 
and  for  their  treatment  in  case  of  sickness. "  Moreover,  this 
old-age  relief  need  not  necessarily  be  in  the  form  of  a  regular 
money  pension.  In  the  cities,  such  payment  usually  constitutes 
the  relief,  but  in  the  country,  aid  "  in  kind  "  in  the  form  of 
fuel,  food,  or  rent  is  frequently  granted.  The  other  limits, 
as  established  by  various  communes,  are  between  the  maximum 
of  200  kroner  ($53.60)  and  a  minimum  of  50  kroner  ($16.30). 

In  France,  the  close  connection  between  old-age  pensions  and 
poor-relief  is  evidenced  not  only  in  the  title  of  the  act,  but 
also  the  provision  which  leaves  the  selection  in  each  individual 
case,  between  institutional  relief  and  outdoor  relief  in  form  of 
pensions,  to  the  local  authorities.  The  French  act  does  not 
establish  any  definite  level  of  pensions.  The  granting  of  the 
pension  is  made  by  the  commune  which  also  determines  the 
general  level  of  pensions  for  its  own  district,  subject,  how- 
ever, to  the  approval  of  a  central  authority.  The  limits  were 
rather  meager.  The  minimum  is  only  5  francs  (96  cents)  per 
month,  and  the  normal  maximum,  20  francs,  or  $3.86,  and 
pension-levels  in  excess  of  that  amount  were  only  authorized 
by  the  central  authority  for  the  largest  cities. 

In  Australia,  as  in  Denmark,  an  adjustment  to  the  individual 
case  is  permitted.  The  amount  of  pension  must  be  "  at  such  a 
rate  as,  having  regard  to  all  the  circumstances  of  the  case,  the 
commissioner  who  determines  the  pension  claim  deems  reason- 
able and  sufficient. ' '  A  maximum  amount  of  £26  per  annum, 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     377 

or  about  $2.50  per  week,  is  provided,  with  a  further  condition 
that  the  pensioner's  total  income,  including  the  pension,  must 
not  exceed  £52  per  annum,  or  $5.00  per  week.  The  same  com- 
paratively high  level  of  pensions  obtains  in  New  Zealand,  and 
did  obtain  in  those  Australian  colonies  which  preceded  the 
Commonwealth's  Act. 

Finally,  the  British  system,  in  amount  of  pension,  stands 
between  those  of  Australia  and  the  Continental  systems.  The 
amount  of  pension  fluctuates  between  1  and  5  shillings  per 
week,  24  cents  to  $1.22,  according  to  the  amount  of  the  other 
income  as  per  the  following  schedule: 

When  income  does  not  exceed  £21,  the  pension  is 5  shillings 

"       is  over  £21  but  not  over  £23,  2V2  s 4        " 

"          "  "     £23, 21/2  s.  but  not  over  £26, 5s...  3        " 

"          "  "     £26,  5     s.    "      "     "  £28,  17V2  s.  2        " 

"          "  "     £28,  17V2s.  "    "     "   £31,  10     s.  1 

"     £31,  10    s.  there  is  no  pension  . .  

Roughly,  the  combined  value  of  the  pension  and  the  income 
enjoyed  will  fluctuate  between  $1.25  a  week  for  those  who  have 
no  income  of  their  own  at  all,  and  about  $3.00  for  those  who 
are  on  the  boundary  line. 

A  certain  relation  between  the  local  cost  of  living  and  the 
amount  of  pension  is  easily  noticed.  But  in  all  the  countries 
enumerated,  the  amount  of  pension  is  barely  sufficient  to  grant 
the  most  urgent  necessities  of  life ;  in  fact,  in  one  or  two  cases, 
it  may  be  questioned  whether  the  old-age  pension  succeeds  in 
doing  that  much.  Nevertheless,  it  is  true  of  all  these  countries 
that  the  demand  for  these  pensions  is  very  persistent  and  the 
number  of  pensioners  is  rapidly  growing.  Opponents  of  old- 
age  pensions  and  of  all  similar  legislation  have  often  pointed 
to  this  fact  as  evidence  of  greed  and  fraud,  but  it  is  difficult  to 
dismiss  the  weight  of  evidence  of  general  old-age  dependency 
which  these  figures  give.  Many  severe  qualifications  are  ex- 
acted before  the  right  to  a  pension  is  admitted.  There  is  no 
reason  to  assume  that  all  these  requirements  remain  a  dead 
letter.  Granted,  then,  these  numerous  qualifications  and  the 
different  age  limits,  what  proportion  of  the  aged  apply  for  and 
receive  the  old-age  pensions? 

Perhaps  there  is  no  country  in  which  both  mutual  aid  and 
co-operation  and  individual  thrift  are  so  highly  developed  as 


378  SOCIAL  INSURANCE 

they  are  in  Denmark.  Nevertheless,  in  face  of  existing  poor- 
relief,  the  adoption  of  the  pension  act  immediately  brought 
forth  a  fairly  large  contingent  of  aged  people  in  need  of  assist- 
ance. In  the  population  of  only  a  little  over  2,500,000  the  very 
first  year  showed  over  30,000  beneficiaries,  and  the  number  has 
been  constantly,  though  slowly,  growing  in  a  much  greater  pro- 
portion than  the  population.  In  1907  this  number  exceeded 
50,000,  so  that  at  present  at  least  60,000  receive  this  old-age 
relief.  Of  persons  over  sixty  years  of  age,  over  25$  are  ad- 
mitted by  careful  examination  of  communal  authorities  to  be 
in  need  of  support ;  the  number  naturally  growing  rapidly  with 
age.  Thus,  between  sixty  and  sixty-five,  the  percentage  for 
men  was  8$,  and  for  women  21.5$;  for  the  ages  sixty-five  to 
seventy,  19$  and  34$,  and  for  the  age-group  of  over  seventy, 
30$  and  39$. 

During  the  same  period,  the  average  amount  of  pension 
granted  has  materially  increased,  from  $27.23  in  1895,  to 
$42.89  in  1907.  In  the  latter  year  the  average  for  cities  was 
about  $53,  and  for  the  rural  districts,  $36. 

No  less  popular  is  the  old-age  pension  system  in  France, 
notwithstanding  the  very  much  smaller  amount  of  pensions. 
The  law  went  into  effect  in  January,  1907.  In  July  of  the  same 
year,  i.e.,  only  six  months  after  the  operation  of  the  law,  the 
number  of  persons  receiving  assistance  was  ascertained  to  be 
340,610,  of  whom  298,840  were  receiving  outdoor  relief  or  pen- 
sions. By  June  30,  1910,  the  total  number  of  pensioners  was 
525,730  and  adding  43,726  receiving  relief  in  institutions,  the 
total  number  of  persons  aided  under  this  act  was  569,456.  By 
September  30, 1912,  this  number  had  further  increased  to  640,- 
532.  With  a  population  of  40,000,000  of  whom  not  over  2  1-2$, 
or  1,000,000,  could  be  over  seventy  years  of  age,  nearly  57$ 
were  receiving  aid  under  the  pension  law,  being  evidently 
dependent. 

Even  a  larger  proportion  of  the  aged  applied  for  pensions  in 
Great  Britain.  The  immediate  response  of  the  population  to 
this  act  was  rather  a  sad  reflection  upon  the  conditions  in 
Great  Britain.  It  was  estimated  in  advance  that  the  number 
of  persons  of  seventy  years  of  age  and  over  in  Great  Britain 
was  1,254,000,  of  whom  393,000  probably  had  an  income  ex- 
ceeding £26  per  annum  (which  was  the  level  proposed  and 
subsequently  changed  to  £31  10s.  per  annum),  that  414,000 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     379 

were  paupers  and  about  60,000  not  qualified  to  receive  pen- 
sions for  various  reasons,  and  that  the  number  of  pensioners 
would  be  386,000.  It  was  further  assumed  that  the  pension 
would  prove  a  strong  stimulus  for  reducing  the  number  of 
paupers  and  thus  increasing  the  number  of  pensioners  to  about 
488,000  in  1911,  and  626,000  in  1912.  Appalling  as  these 
figures  were,  the  actual  experience  showed  that  they  materially 
underestimated  the  existing  demand  for  old-age  relief,  as  in 
1909  the  total  number  of  pensioners  already  reached  667,000, 
or  nearly  twice  as  many  as  were  expected,  constituting  over 
one-half  of  the  population  over  seventy  years  of  age,  although 
about  25$  or  30$  were  receiving  aid  as  paupers.  Since  then 
the  number  of  pensioners  has  grown  with  remarkable  rapidity, 
reaching  700,000  in  1910,  907,000  in  1911,  and  942,000  in 
1912.  The  sudden  increase  in  1911  is  clearly  due  to  the 
expiration  of  the  poor-relief  disqualifications.  Thus  some  75$ 
of  the  population  over  70  years  of  age  are  receiving  old-age 
pensions  at  present. 

It  is  still  more  amazing  that  the  degree  of  old-age  need  was 
almost  as  urgent  in  the  prosperous  Australian  colonies. 
"Who  has  not  heard  of  the  economic  prosperity  of  New 
Zealand  ?  Nevertheless,  in  a  population  of  a  little  over  1,000,000 
the  number  of  pensioners  in  1909  was  14,396,  or  nearly  1 1-2$. 
As  the  number  of  persons  over  sixty-five  years  of  age  con- 
stitutes about  4$  of  the  total  population,  it  follows  that  some 
35$  of  that  age-group  were  able  to  qualify  for  the  old-age 
pensions. 

Finally,  for  the  whole  of  Australia,  the  number  of  penr- 
sioners  in  December,  1909,  was  60,000  in  a  population  of 
3,832,760,  or  nearly  1.5$,  or  over  40$  of  the  aged  population. 

Can  any  evidence  be  more  convincing  than  these  dry 
figures  of  the  urgent  need  of  some  form  of  old-age  pro- 
vision ? 

With  such  large  and  rapidly  growing  numbers  of  pensioners 
throughout  the  civilized  world,  the  cost  of  old-age  pensions 
must  be  perceptible.  Even  in  such  a  small  country  as  Den- 
mark, the  cost  has  increased  from  $685,000  in  1892,  to  $2,175,- 
000  in  1907.  In  New  Zealand,  the  cost  reached  nearly  $1,750,- 
000  in  1909;  in  New  South  Wales  over  $2,134,000,  and  in 
Victoria  over  $1,325,000.  The  greatest  expenditures  are  natu- 
rally called  forth  in  France  and  Great  Britain.  In  France 


380  SOCIAL  INSURANCE 

the  cost  during  the  first  year  of  its  application  was  about 
45,000,000  francs  (about  $9,000,000),  and  has  since  increased 
to  some  100,000,000  francs,  or  about  $20,000,000.  In  Great 
Britain,  where  both  the  number  of  pensioners  and  the  amount 
of  pension  is  greater,  the  cost  for  1909  was  £8,500,000,  or 
$42,000,000,  and  increased  to  £9,800,000  ($48,000,000)  in 
1910-11,  and  £11,700,000  ($57,000,000)  in  1911-12.  In  other 
words,  the  pension  system  called  for  large  appropriations 
which  must  rapidly  increase,  while  under  a  compulsory  in- 
surance system,  on  the  contrary,  a  gradual  decrease  of  con- 
tributions from  the  national  treasury  is  expected. 

The  financial  arrangements  of  the  different  systems  are, 
therefore,  of  considerable  importance.  In  this,  two  different 
types  may  be  distinguished:  Under  one  there  is  a  concentra- 
tion of  all  expenditures  within  the  national  financial  system, 
and  under  the  other  there  is  an  effort  to  shift  at  least  part  of 
the  expenditures  upon  the  local  authorities  and  means. 

In  Great  Britain  and  its  colonies  the  first  plan  prevails,  and 
it  is  understood  in  Great  Britain  that  the  income  tax  is  to  be 
called  upon  to  furnish  the  necessary  means  for  meeting  this 
additional  expense.  In  Denmark  and  France,  where  the  local 
authorities  are  given  considerable  discretion  in  determining  the 
amount  of  pension,  they  share  in  its  cost.  In  Denmark  the 
rule  is  simple :  the  commune  grants  the  relief  out  of  its  own 
funds  and  is  reimbursed,  out  of  the  treasury,  for  one-half  of 
the  expenditures.  In  France  the  financial  arrangements  are 
more  complicated.  The  communes  which  grant  the  pensions 
receive  subsidies  from  the  department,  according  to  a  com- 
plicated sliding  rule  of  taxable  property  which  works  out  in 
such  a  way  that  the  larger  the  proceeds  from  local  taxation,  the 
larger  is  the  share  of  the  commune  and  the  smaller  the  subsidy 
of  the  department.  The  latter  may  vary  from  90$  to  30$ 
of  the  total  cost.  In  addition,  the  state  contributes  from  10$ 
to  20$,  according  to  the  number  of  persons  per  thousand  as- 
sisted, if  it  is  over  10,000.  Furthermore,  the  department 
itself  receives  a  subsidy  from  the  state  varying  from  50$  to 
95$,  according  to  the  local  level  of  taxation.  Experience  has 
shown  that  under  this  complex  system  of  apportionment,  about 
one-half  of  the  cost  is  contributed  by  the  state  treasury,  the 
subsidies  being  greatest  where  the  local  finances  are  weakest. 
The  advantages  of  this  system  are  supposed  to  be  not  only 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     381 

in  lifting  part  of  the  burden  from  the  national  treasury, 
but  also  in  enlisting  the  interest  of  the  local  authorities  in 
eliminating  malingery  and  fraud. 

Notwithstanding  the  great  popularity  of  old-age  pensions 
wherever  they  were  introduced,  they  have  been  subject  to  severe 
criticism,  both  by  adherents  of  the  compulsory  principles  and 
by  others  who  expect  various  harmful  results  from  the  intro- 
duction of  such  systematic  old-age  relief.  Perhaps  the  most 
emphatic  criticism  of  old-age  pensions  has  been  made  in  the 
report  of  the  Massachusetts  Commission  on  Old- Age  Pensions, 
Annuities,  and  Insurance,  which  was  published  in  1910.  This 
criticism  is  summed  up  by  the  commission  under  the  following 
heads:  (1)  heavy  expenses;  (2)  moral  effect  upon  character  in 
destroying  the  habit  of  thrift;  (3)  the  disintegrating  effect  on 
the  family,  and  (4)  the  harmful  effect  upon  wages. 

The  arguments,  supported  by  the  weighty  authority  of  the 
commission,  and  not  limited  in  their  application  to  the  United 
States,  are  deserving  of  a  careful  consideration.  The  fiscal 
argument  may  be  passed  over  for  the  moment.  When  an 
institution  is  to  be  established,  first,  its  necessity,  its  useful- 
ness, or  harmfulness  must  be  considered,  and  only  then,  the 
question  of  ways  and  means  comes  into  the  foreground. 

Does  the  prospect  of  an  old-age  pension  decrease  the  habit  of 
thrift?  And  is  this  possible  effect  an  argument  against  old- 
age  pensions?  In  every  one  of  the  existing  pension  systems 
a  certain  amount  of  property  and  income  is  permitted  to  the 
old-age  pensioners.  The  fact  that  from  one-fourth  to  three- 
fourths  of  the  people  reaching  that  age  do  not  possess  the  nec- 
essary income  shows  that  there  was  either  no  habit  of  thrift  to 
destroy  or  that  the  conditions  of  life  and  wages  were  such 
that  thrift  was  impossible.  In  other  words,  the  argument,  to 
be  consistent,  should  be,  not  that  the  system  of  old-age  pensions 
destroys  the  habit  of  thrift,  but  that  it  interferes  with  the  up- 
building of  such  a  habit,  and  that  if  such  a  habit  were  capable 
of  upbuilding  the  level  of  wages,  it  might  then  offer  a  solu- 
tion of  the  old-age  problem.  But  this  theory  is  so  emphatically 
contradicted  by  all  known  results  of  studies  of  wages  and  the 
standard  of  living,  that  it  really  does  not  seem  to  need  any 
formal  refutation.  In  so  far  as  the  standard  of  wages  may  be 
influenced  by  the  worker  himself,  it  is  not  the  habit  of  thrift 
but  his  standard  of  life  that  succeeds  in  making  them. 


382  SOCIAL  INSURANCE 

Moreover,  in  addition  to  the  problem  of  old  age,  there  are 
many  other  conditions  facing  the  workingman  during  his  whole 
life  which  may  sufficiently  stimulate  this  habit  of  thrift  where 
thrift  is  possible  and  desirable.  The  legitimate  purpose  of 
thrift  is  to  regulate  expenditures  in  such  a  wise  manner  as  to 
prevent  waste  and  permit  a  constant  rising  of  the  standard  of 
life.  If  thrift  is  to  be  called  upon  to  make  provision  for  the 
uncertain  emergency  of  old  age,  such  results  will  only  be  ob- 
tainable at  a  certain  reduction  of  a  standard  throughout  the 
life  of  the  wage-worker. 

Still  more  striking  is  the  fear  of  the  disintegrating  effect 
of  the  old-age  pension  on  the  family.  It  has  been  argued  by 
the  commission  that  such  a  pension  system  ' '  would  take  away 
the  moral  obligation  for  the  support  of  aged  persons  which 
is  the  main  point  of  family  solidarity. ' '  To  say  the  least,  this 
is  an  argument  which  holds  fast  to  an  ideal  of  family  which 
dates  back  to  the  middle  ages,  or  at  least  to  an  agricultural 
community. 

' '  We  Americans, ' '  says  Mr.  L.  W.  Squier,1  * '  have  not  that 
conception  of  the  family  as  the  unit  of  society,  and  that 
reverence  for  old  age,  which  is  engrafted  upon  the  heart  of  the 
Oriental.  ...  In  this  country  no  such  esteem  for  the  aged 
ones  prevails,  except  among  his  relatives  and  especially  in 
agricultural  communities.  In  our  manufacturing  centers,  espe- 
cially, the  helpless,  destitute  grandfather  or  grandmother  is 
regarded  as  a  distinct  burden  to  the  household,  the  carrying 
of  which  oftentimes  forces  children  out  of  school  and  into  the 
streets,  factories,  or  shops,  in  order  to  provide  for  the  added 
increment  to  the  household  expenses  which  the  taking  on  of  an 
aged  relative  entails.7' 

The  phenomenon  is  not  a  result  of  racial  distinction  between 
Oriental  and  Occidental ;  it  is  a  distinction  between  the  status 
of  family  in  an  agricultural  and  industrial  stage  of  civiliza- 
tion. The  truth  is  that  there  is  nothing  for  the  old-age  pension 
to  destroy. 

And  then  there  is  the  supposed  economic  danger — the  de- 
pressing effect  upon  wages.  This  objection  of  the  commission 
is  based  on  no  less  than  three  considerations: 

First. — The  unfavorable  effect  the  pension  would  have  by 
attracting  foreign  sources  of  labor.  In  support  of  this  theory, 
1  Old  Age  Dependency  in  the  United  States,  p.  312. 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     383 

the  commission  brought  forth  no  facts,  nor  could  the  statistical 
demonstration  of  this  argument  be  at  all  possible.  Yet  against 
it  may  be  quoted  the  consideration  that  migration  is  not  popu- 
lar in  the  age-level  over  fifty,  and  that  as  far  as  the  younger 
elements  are  concerned,  it  would  be  childish  to  expect  that  they 
would  be  influenced  in  the  selection  of  the  country  of  immigra- 
tion by  conditions  as  they  will  be  after  sixty,  rather  than  those 
immediately  to  be  expected. 

Second. — There  is  the  fear  of  the  effect  of  possible  competi- 
tion of  the  pensioners.  It  is  assumed  that  a  pension  which 
grants  an  old  man  or  woman  no  more  than  a  guarantee  from 
starvation  must  increase  his  power  as  a  competitor.  The 
argument,  if  sound,  would  apply  equally  well  to  a  freely  pur- 
chased annuity,  to  support  furnished  by  children,  or  even  to 
a  substantial  savings-bank  account  obtained  by  patient  exercise 
of  thrift.  It  is  quite  evident  if  the  man  at  the  age  of  sixty  or 
sixty-five,  when  the  pension  is  granted,  is  still  physically  in  a 
position  to  perform  some  useful  labor,  though  with  a  much 
lower  degree  of  efficiency,  his  danger  as  a  competitor  would 
be  very  much  greater  in  absence  of  other  means  of  support. 
Any  labor  union  man  knows  what  a  professional  economist 
may  sometimes  disregard,  that  a  competitor  in  the  labor  market 
is  never  as  dangerous  as  he  is  when  he  is  starving.  As  a  mat- 
ter of  fact,  the  age-limit  exacted  in  all  pension  systems,  with 
the  possible  exception  of  Denmark,  is  such  as  to  make  the  fear 
of  competition  a  negligible  quantity. 

The  third  argument  is  even  more  far-fetched:  it  is  claimed 
that  the  prospect  of  a  pension  in  future  old  age  would  tempt 
and  enable  workingmen  to  offer  their  services  for  lower  wages 
at  present.  It  presumes  a  theory  of  wages  which  includes 
the  cost  of  old-age  support  as  a  usual  element.  It  presumes 
that  specific  savings  for  old  age  are  a  normal  feature  of  the 
life  of  the  working  class.  In  short,  it  assumes  various  eco- 
nomic conditions  which  are  based  upon  the  hypothetical  study 
of  the  nature  of  the  economic  man  rather  than  upon  the  actual 
studies  of  the  life  of  the  working  class. 

There  remains  the  one  and  all-powerful  convincing  argu- 
ment of  cost,  especially  the  fear  that  the  cost  would  be  greater 
than  assumed,  for  that  is  just  what  happened  in  most  coun- 
tries granting  old-age  pensions ;  but  that  is  only  another  form 
of  admitting  that  the  degree  of  old-age  distress  and  of  the 


384  SOCIAL  INSURANCE 

need  for  old-age  support  is  much  greater  than  we  are  willing 
to  believe. 

The  argument  of  cost  must  assume  either,  that  a  civilized, 
highly  industrial  nation  is  too  poor  to  keep  up  its  veterans 
of  industry,  or  that  the  degree  of  comfort  granted  by  old-age 
pensions  is  unnecessarily  high  (being  $1.25  in  England  and 
$2.50  in  Australia),  or,  finally,  that  the  working  class  itself 
is  better  able  to  yield  that  support  than  is  the  nation  with  its 
far-reaching  power  of  taxation.  It  is  difficult  not  to  reach  the 
conclusion  that  this  argument  is  simply  equivalent  to  a  denial 
of  any  responsibility  on  the  part  of  organized  society  towards 
relieving  the  distress  of  those  who,  after  having  spent  their 
lives  in  productive  activity,  find  themselves  deprived  of  any 
means  of  support.  All  these  arguments  have  been  sufficiently 
thrashed  out,  not  only  in  such  radical  countries  as  Australia 
and  New  Zealand,  but  even  in  Great  Britain,  and  modern  Eu- 
rope has  long  since  reached  the  point  where  it  is  willing  to  face 
these  similar  problems  upon  a  basis  of  study  of  actual  condi- 
tions, rather  than  abstract  arguments  based  upon  the  doubtful 
economic  psychology.  France,  in  1905,  and  Great  Britain, 
in  1908,  adopted  their  far-reaching  and  costly  systems  of  old- 
age  pensions  for  no  other  reason  than  that  the  social  need  for 
such  systems  was  proven  to  be  pressing. 

But  granting  all  this,  granting  the  great  degree  of  distress 
and  society's  admitted  obligation  to  come  to  the  rescue,  is  a 
system  of  old-age  pensions  the  best  or  only  method  of  accom- 
plishing the  aim  ?  Our  study  of  the  subject  has  demonstrated 
the  existence  of  two  methods — seemingly  contradictory  and 
mutually  exclusive,  though  in  reality  merging  one  into  the 
other — that  of  compulsory  old-age  insurance  against  a  system 
of  non-contributory  old-age  pensions.  While  only  two  impor- 
tant countries  have  as  yet  adopted  national  systems  of  com- 
pulsory old-age  insurance,  that  is  the  method  contemplated  in 
most  other  Continental  countries.  It  is  also  true  that  France, 
having  adopted  the  system  of  old-age  pensions  in  1905,  never- 
theless enacted  compulsory  insurance  in  1910.  It  is  also  true, 
however,  that  during  the  introduction  of  the  compulsory  sys- 
tem in  France,  there  was  a  violent  opposition  to  the«system  from 
the  population  at  large  and  especially  from  the  radical  elements 
of  the  working  class,  and  that  from  the  extremest  of  them 
the  opposition  to  the  compulsory  principle,  or  rather  to  the 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     385 

contribution  by  the  wage-workers,  went  so  far  that  for  a  cer- 
tain time  a  systematic  effort  was  made  by  the  radical  faction 
of  the  French  socialist  movement  to  resist,  by  force,  the 
application  of  the  law. 

The  situation,  therefore,  appears  somewhat  confusing. 
What  are  the  main  objections  of  the  workingman  to  a  com- 
pulsory insurance  system?  Evidently,  it  cannot  be  the  state 
subsidy  granted,  for  this  is  but  the  application  of  the  state 
pension  principle,  nor  can  it  be  the  objection  to  the  contribu- 
tions from  employers. 

It  is  argued,  and  with  a  good  deal  of  justice,  that  compulsory 
contributions  by  the  workmen  themselves  represent  a  hardship 
and  an  additional  burden  which  a  good  many  of  them  are 
unable  to  meet  without  suffering  material  loss.  That  a  good 
deal  of  weight  must  be  given  to  the  argument  goes  without 
saying.  That  a  system  of  compulsory  insurance  which  would 
eliminate  that  feature,  were  it  to  grant  equally  favorable  re- 
sults, would  be  more  desirable  from  the  point  of  view  of  the 
classes  interested  may  also  be  admitted.  Such  a  system  of 
insurance,  combining  a  state  subsidy  only  with  the  employers' 
contributions,  is  not  being  contemplated  at  present  in  any 
of  the  countries.  It  is  necessary  to  point  out  that  the  harmful 
effect  of  that  additional  burden  of  compulsory  insurance 
contributions  is  somewhat  exaggerated. 

As  a  matter  of  fact,  the  German  employer  frequently 
pays  both  shares  of  the  compulsory  system  voluntarily.  An 
increasing  number  of  students  are  beginning  to  see  that  this 
feature  of  the  employees '  contribution  is  far  less  important  than 
it  has  been  made  to  appear.  On  the  other  hand,  the  compul- 
sory insurance  system  seems  to  have  a  great  many  advantages 
over  the  system  of  straight  pensions.  Of  course,  the  latter  is 
extremely  simple  as  compared  with  the  bewildering  perplexity 
of  a  modern  compulsory  insurance  law,  and  its  very  simplicity- 
proves  attractive  to  the  popular  mind,  but  scientific  remedies 
to  social  evils  cannot  be  any  simpler  than  the  problems  them- 
selves. That  the  system  of  old-age  pensions  proved  to  be  the 
most  effective  as  an  immediate  remedy  to  an  existing  situation, 
such  as  was  found  in  France  or  England,  may  be  admitted 
without  dispute.  But  there  are  many  serious  objections  to 
such  a  system,  at  least  as  it  has  been  realized,  besides  those 
which  the  Massachusetts  Commission  has  mentioned. 


386  SOCIAL  INSURANCE 

To  begin  with,  all  systems  existing  grant  but  a  minimum 
necessary  to  keep  soul  and  body  together,  for  it  must  not  be 
forgotten  that  the  origin  of  old-age  pensions  was  in  poor- 
relief.  It  is  true  that  the  same  criticism  may  be  offered  of 
the  compulsory  systems  of  Germany  and  France,  but  it  must  be 
remembered  that  neither  the  German  nor  the  French  national 
system  has  exhausted  the  possibilities  of  compulsory  old-age 
insurance.  It  is  for  this  very  reason  that  special  pension 
funds  of  the  railroad  employees,  miners,  and  seamen  found 
in  such  quantities  throughout  Europe  were  mentioned,  for 
there  one  finds  large  possibilities  of  a  compulsory  old-age 
insurance  system.  In  these  funds  the  ideal  of  old-age  insur- 
ance has  finally  been  realized,  in  that  they  grant  a  great  deal 
more  than  a  bare  means  of  existence.  In  fact,  they  grant  what, 
with  proper  consideration  for  the  respective  standards  of  wages 
and  life  in  the  various  countries,  must  be  considered  a  com- 
fortable old-age  provision,  and  they  do  grant  it  by  means  of  a 
system  to  which  both  sides  contribute. 

More  than  that,  while  they  all  began  upon  the  principle  of 
equal  contributions  from  both  sides,  they  proved  to  be  an 
excellent  means  of  forcing  very  much  higher  contributions 
from  the  employer.  Finally,  no  compulsory  system  exacts  evi- 
dence of  practical,  if  not  legal,  pauperism,  which  all  state 
pensions  do. 

Many  broader  economic  arguments  can  be  advanced  in  sup- 
port of  the  compulsory  system.  It  is  not  a  dead-level  system. 
It  preserves  a  normal  relation  between  the  standards  of  life 
before  and  after  the  age  of  pension  and  also  preserves  a  just 
relationship  between  services  rendered  and  the  rewards 
granted,  for  it  is  usually  based  upon  the  length  of  contribu- 
tions, which  is  the  length  of  productive  activity.  It  is  econom- 
ically just,  in  so  far  as  it  exacts  a  contribution  from  the 
industry,  for  superannuation  is  no  less  a  factor  of  modern 
industrial  life  than  is  the  rate  of  accidents  or  of  sickness.  If 
it  be  just  that  each  industry  should  contribute  to  the  cost 
of  accident  compensation  in  proportion  to  the  number  of  acci- 
dents occurring,  rather  than  that  the  entire  cost  be  forced 
back  upon  the  national  treasury,  it  would  seem  to  be  equally 
just  that  an  industry  which  uses  up  men  by  forty-five  or 
fifty-five  years  be  made  to  contribute  to  the  cost  of  old-age 
support  in  a  greater  degree  than  another  industry  or  occupa- 


NON-CONTRIBUTORY  OLD-AGE  PENSIONS     387 

tion  in  which  men  can  preserve  their  productive  life  until 
sixty-five.  Looking  upon  it  in  another  way,  the  justice  of  the 
claim  may  be  admitted,  that  a  contribution  on  the  part  of  the 
industry  to  old-age  insurance  is  but  a  deferred  wage;  surely 
if  the  French  railroads  contribute  to  various  pension  organiza- 
tions from  10$  to  15$  of  the  cost  of  labor,  the  sum-total  is  un- 
doubtedly a  part  of  their  expense  for  labor.  In  a  final  analysis, 
therefore,  the  workingmen  themselves  may  be  said  to  advance 
the  entire  cost  of  old-age  support.  Nor  is  this  wrong  in  prin- 
ciple, provided  that  we  assume  that  a  workingman's  wages  are 
sufficiently  high  to  permit  such  old-age  pension.  In  other 
words,  a  national  system  of  old-age  insurance  must  be  con- 
sidered as  a  means  by  which  society  raises  the  general  wage 
level  so  as  to  include  the  cost  of  old-age  support  with  the  cost 
of  the  normal  standard  of  life.  If,  under  modern  industrial 
conditions,  it  could  be  expected  that  the  wage-workers  them- 
selves would  be  able  to  raise  the  standard  of  wages  to  the  neces- 
sary level  so  as  to  include  the  cost  of  old-age  support,  and  that 
they  would  use  this  additional  increment  for  that  purpose — 
no  compulsory  system  would  be  necessary.  But  the  compulsory 
system  is  necessary  just  because  these  two  conditions  are  found 
to  be  impossible. 

Does  it  follow,  from  this  line  of  argument,  that  old-age 
pensions  are  harmful  or  unnecessary?  Not  at  all.  At  least 
two  very  convincing  arguments  may  be  advanced  in  favor 
of  old-age  pensions.  Firstly,  as  a  temporary  measure,  they  are 
inevitable,  for  the  conditions  of  compulsory  insurance  have 
no  retroactive  force;  secondly,  modern  industry  being  organ- 
ized as  it  is,  there  will  be,  for  a  long  time,  a  certain  element  of 
casual,  irregular  labor  which  will  be  unable  to  comply  with 
the  exacting  conditions  of  compulsory  insurance  and  is  yet  de- 
serving of  some  systematic  support. 

Moreover,  the  need  of  old-age  provision  is  not  necessarily 
limited  to  the  wage-working  or  salaried  classes,  which  alone  can 
be  systematically  provided  for  under  a  scheme  of  compulsory 
insurance  with  employers'  contributions.  The  most  "  uni- 
versal "  compulsory  system  is  far  from  being  universal.  Not 
only  the  casual  laborers  but  also  artisans,  the  small  producers, 
the  petty  merchants,  and  occasionally  other  groups  of  popula- 
tion, may  find  themselves  in  old  age  in  the  position  of  the 
(<  worthy  poor."  Their  need  will  be  supplied  by  an  old- 


388  SOCIAL  INSURANCE 

age  pension  more  dignified  than  the  old  forms  of  poor- 
relief.2 

It  is  for  this  reason  that  the  situation  in  France,  com- 
bining both  systems,  is  so  extremely  interesting.  In  discuss- 
ing this  situation,  Mr.  M.  M.  Dawson  states  3  that  the  function 
of  the  old-age  pension  is  a  transitory  one  to  be  supplanted  by 
the  compulsory  insurance  system  in  time.  This  may  be  true 
to  a  certain  extent  only.  It  was  argued,  when  the  system 
of  old-age  pensions  was  first  proposed,  that  it  would  do  away 
entirely  with  other  forms  of  old-age  poor-relief,  institutional 
as  well  as  outdoor.  The  fact  that,  while  poor-relief  was  some- 
what affected,  it  was  yet  not  entirely  eliminated,  is  no  argument 
against  the  pension  system.  It  simply  showed  that  the  old- 
age  pension  satisfied  an  additional  need.  Even  so,  the  com- 
pulsory insurance  system  may  supplement  instead  of  sub- 
stituting for  the  old-age  pension. 

The  most  liberal  system  of  old-age  pensions  existing  does  not, 
therefore,  completely  do  away  with  the  possible  application  of 
a  compulsory  system,  and  surely  no  system  of  compulsory  old- 
age  insurance  has  done  away  with  the  necessity  of  old-age 
pensions. 

It  is  not  at  all  impossible  that  Great  Britain  may,  in  the 
not  distant  future,  follow  France's  example  in  providing  a 
dual  system.  Surely,  the  National  Insurance  Act,  which  has 
familiarized  Great  Britain  with  the  principle  of  compulsory 
insurance  and  has  gone  partially  into  the  field  of  invalidity 
insurance,  appears  as  a  very  powerful  argument  in  favor  of 
such  a  course.  There  is  also  a  serious  movement  on  foot  for 
a  system  of  compulsory  old-age  insurance  in  Denmark,  the 
fatherland  of  straight  non-contributory  pensions,  but  this 
movement  seems  free  from  any  demand  for  the  abolition  of  the 
existing  pension  system. 

2  The  writer  is  under  obligations  to  Professor  K.  Coman,  of  Wellesley 
College,  and  Mr.  Paul  Kellogg,  editor  of  The  Survey,  for  the  privilege  of 
reading  the  MS.  of  Dr.  Coman's   paper  on  the  new  Swedish   Old  Age 
Insurance  Law,  which  includes  the  novel  feature  of  exacting  insurance 
from  every  man,  woman,  and  child  over  sixteen.     This  absolute  univer- 
sality is  unique  and  not  likely  to  be  adopted  by  many  countries. 

3  Market  World  and  Chronicle,  August  31,  1912. 


r 


CHAPTER  XXIV 
THE  PENSION  MOVEMENT  IN  THE  UNITED  STATES 

IT  is  a  very  interesting  fact  of  American  social  history  that 
both  from  the  point  of  view  of  actual  achievements  and  that 
of  intelligent  consideration,  much  more  has  been  accomplished 
in  provision  for  old  age  and  superannuation  than  in  sickness 
insurance.  Perhaps  it  may  be  explained  by  the  influence  of 
the  British  precedents,  where  the  enactment  of  an  old-age 
pension  act  preceded  that  of  compulsory  sickness  insurance  by 
four  years.  Perhaps  it  is  the  effect  of  the  war  pension  system 
which  has  familiarized  the  American  mind  with  the  problem 
of  old  age.  But  one  who  looks  for  economic  interpretation  of 
important  social  phenomena  may  find  at  least  a  partial  ex- 
planation in  the  pressing  need  for  a  solution  of  the  problem  of 
superannuation  in  economic  activity  of  all  kinds. 

The  sick  workman  hardly  presents  a  problem  from  an 
industrial  point  of  view.  Automatically  he  is  eliminated  from 
the  field  of  employment,  and  his  place  must  be  filled  by  another, 
more  vigorous  wage-worker.  It  is  not  so  easy  to  eliminate  the 
aged  with  their  gradually  failing  economic  activity,  unless  some 
systematic  plan  of  retirement  exists. 

Undoubtedly  that  explains  the  growing  popularity  of  various 
establishment  funds,  which  will  be  discussed  presently.  It  is 
not  often  that  the  economic  basis  underlying  "  social  welfare 
work  "  of  large  corporations  is  emphasized  so  pointedly  as 
was  done  by  Mr.  F.  A.  Vanderlip  (whose  close  relationship 
with  industrial  and  financial  interests  will  not  be  doubted  by 
any  one),  in  the  following  quotation: 

"  The  pension  attaches  the  employees  to  the  service  and  thus  de- 
creases the  liability  to  strike.  It  makes  more  certain  the  continuance 
of  efficient  men  in  the  lines  of  work  with  which  they  are  perfectly 
familiar.  Of  quite  as  much  importance  is  the  fact  that  a  pension 
system  enables  employers  to  dispense  with  the  elderly  and  inefficient, 
and  thus  gives  constant  encouragement  to  good  effort  on  the  part 
of  the  younger  men  hoping  for  promotion.  When  employees  realize 

389 


390  SOCIAL  INSURANCE 

that  unsatisfactory  conduct  may  at  any  time  lose  them  not  only 
their  present  position — a  loss  which  in  such  a  labor  market  as  ours 
might  be  easily  be  made  good — but  that  it  entails  further  the  loss 
of  a  very  valuable  asset,  the  employee's  right  to  a  pension,  the  in- 
centive to  good  conduct  is  greatly  increased.  It  operates  especially 
as  an  incentive  to  hold  men  between  the  ages  of  forty  and  fifty, 
when  they  have  acquired  the  experience  and  skill  which  makes  them 
especially  valuable,  and  prevents  their  being  tempted  away  by 
slightly  increased  wages  for  a  temporary  period.7'  *• 

Naturally,  the  pressure  of  these  economic  factors  expressed 
itself  not  only  in  these  establishment  pension  funds,  but  also 
in  the  appointment  of  commissions  for  the  investigation  of  this 
problem  in  several  states,  and  in  a  general  discussion  of  the 
problem,  as  a  result  of  which  a  considerable  amount  of  de- 
scriptive material  is  available  which  enables  the  student  to 
gage,  at  least  approximately,  the  development  of  various  forms 
of  old-age  insurance.2 

But  while  the  efforts  and  experiments  are  many,  the  actual 
results  as  yet  are  few.  Almost  all  the  types  of  institutions  for 
insurance  or  mutual  aid  which  have  been  enumerated  and 
briefly  described  in  connection  with  sickness  insurance  are 
also  operative  in  the  field  of  old-age  provision.  In  addition 
there  are  other  important  institutions  of  governmental  nature. 

In  old-age  insurance  as  in  sickness  insurance,  the  following 
organizations  must  be  taken  into  account : 

A.   Private  Agencies. 

(1)  Mutual  Insurance.     Trade  and  labor  unions. 

(2)  Contributory  Voluntary  Systems.    Establishment  funds. 

(3)  Straight  Pensions  Granted  by  Employers,     (a)  Estab- 

lishment funds.     (&)  Railroad  funds. 

1  Conference   of   Charities   and   Corrections,   Philadelphia,   Pa.,    1906. 
Proceedings    (quoted   by   L.    W.   Squier:    Old  Age  Dependency  in   the 
United  States,  p.  73). 

2  See    Twenty-third   Annual    Report   of    the    U.    S.    Commissioner    of 
Labor:     "Workmen's    Insurance    and    Benefit    Funds    in    the    United 
States,"  especially  Chaps.  Ill  and  IV. — Charles  R.  Henderson:   Indus- 
trial Insurance  in  the  United  States,  especially  Chaps.  VII,  VIII,  IX, 
and  X. — L.  W.  Squier:    Old  Age  Dependency  in  the   United  States. — 
Pension  Funds  for  Municipal  Employees  and  Railroad  Pension  Systems 
in  the  United  States  (Senate  Document  No.  427,  61st  Cong.,  2nd  Sess. — 
E.  B.  Phelps :  "  The  Drift  Towards  Old  Age  Pensions,"  American  Under- 
writer, Vol.  XXX,  January,   1909. — Report  of  the  Massachusetts  Com- 
mission on  Old  Age  Pensions,  Annuities,  and  Insurance. 


PENSION  MOVEMENT  IN  UNITED  STATES    391 

(4)  Private    Voluntary    Annuity    Insurance.      Fraternal 

orders. 

(5)  Commercial  Annuity  Insurance,     (a)   Ordinary  insur- 

ance companies.    ( b )  Industrial  insurance  companies. 
B.   Governmental  Agencies. 

(6)  Voluntary  Insurance,     (a)    Massachusetts  plan.      (6) 

Wisconsin  plan. 

(7)  Municipal  Agencies.     Employees7  pension  funds:    (a) 

Teachers7,      (b)    Firemen's,      (c)   Policemen's,      (d) 
Other  employees'. 

(8)  State  Pension  Schemes. 

(9)  The  National  Military  Pension  System. 

The  list  is  not  complete,  but  sufficiently  comprehensive  to 
indicate  the  extreme  complexity  of  the  existing  organizations 
which  may  be  taken  into  consideration  if  ever  a  truly  national 
system  of  old-age  provision  is  decided  upon. 

As  in  Europe,  so  in  the  United  States,  mutual  insurance 
has  accomplished  very  little  towards  the  solution  of  old-age 
pensions.  In  regard  to  the  benefit  activity  of  trade  unions,  the 
official  report  of  the  U.  S.  Bureau  of  Labor  is  available.  If 
only  11#  of  the  total  benefit  payments  went  for  purposes  of 
sickness,  the  share  of  superannuation  benefits  was  very  much 
smaller,  namely,  $198,615,  or  less  than  2  1-2$. 

Of  the  eighty-four  national  unions  investigated,  only  four 
(with  a  combined  membership  of  100,000)  reported  super- 
annuation benefits,  and  in  addition  four  unions  had  provided 
for  a  superannuation  benefit  system  in  the  future. 

It  is  evident  that  superannuation  benefits  form  an  unusual 
feature  of  trade  union  activity  in  this  country.  In  fact,  the 
Amalgamated  Society  of  Carpenters  and  Joiners  is  the  only 
national  union  whose  activity  in  that  direction  was  of  some 
importance.  It  boasts  of  superannuation  benefits  since  1867, 
and  in  1905  spent  for  this  purpose  $180,000  distributed  among 
1,818  aged  members.  But  the  interesting  feature  of  this  ac- 
tivity is  that  this  superannuation  was  almost  altogether  limited 
to  branches  outside  of  the  United  States;  of  the  1,818  pen- 
sioners, only  39  were  in  the  United  States.  Only  some  $25,000 
was  spent  by  the  American  union  for  superannuation  benefits. 

Still  more  insignificant  was  the  activity  of  the  local  unions. 
Only  seven  unions,  with  10,000  members,  were  granting  pen- 
sions for  permanent  disability  due  to  any  cause.  In  other 
words,  as  far  as  old-age  provision  is  concerned,  the  trade 


392  SOCIAL  INSURANCE 

/  unions  frankly  recognize  the  impossibility  of  dealing  with  the 
problem,  because  of  both  the  actuarial  and  administrative 
difficulties  involved,  and  very  little  development  in  that  direc- 
tion may  be  expected  in  the  future. 

Another  form  of  mutual  insurance,  which  is  not  limited  to 
wage-workers  alone,  but  combines  this  class  with  some  portions 
of  the  middle  classes,  is  that  of  fraternal  societies.  But  these 
societies  operate  mainly  in  the  field  of  life  insurance  and 
partly  in  sickness  insurance.  As  far  as  old-age  pensions  are 
concerned,  that  is  still  more  limited  than  in  the  case  of  trade 
unions. 

To  begin  with,  in  most  states  old-age  pensions  are  prohibited 
to  the  fraternal  societies  by  law,  and  though  some  exceptions 
exist,  very  few  of  the  fraternal  societies  have  availed  them- 
selves of  the  opportunity. 

It  is  true  that  the  Massachusetts  Commission  on  Old- Age 
Pensions  recommended  a  change  in  the  law  which  would  per- 
mit fraternal  societies  to  assume  the  payment  of  old-age  pen- 
sions, but  the  Insurance  Commissioners'  Convention  of  1910 
took  a  stand  against  this  recommendation,  taking  the  point  of 
view  that  the  readjustment  of  its  life  insurance  activity  was  a 
sufficiently  big  problem  for  the  time  being. 

If  the  danger  of  unsound  actuarial  conditions  always  stared 
in  the  face  both  unions  and  fraternal  orders,  there  could 
be  no  such  difficulty  in  the  case  of  private  commercial  life 
insurance  companies.  But,  nevertheless,  the  results  here,  too, 
are  disappointing,  to  say  the  least.  Even  among  the  middle 
classes,  who  purchase  life  insurance  in  such  enormous  quan- 
tities from  the  "  ordinary  "  insurance  companies,  insurance 
of  old-age  pensions  has  never  become  popular  in  this  country. 

Very  recently,  and  presumably  under  pressure  of  the  Massa- 
chusetts Savings  Banks  Insurance  plan,  the  large  industrial 
insurance  companies  have  introduced  old-age  insurance 
policies,  or  rather  combinations  between  life  and  old-age  in- 
surance. The  conditions  of  such  insurance  look  attractive,  as 
is  shown  by  the  table  on  the  opposite  page. 

It  may  be  true  that  thirteen  cents  a  week  is  not  a  very  heavy 
burden  for  a  young  man  of  twenty.  But  it  must  be  remem- 
bered that  it  is  the  exceptional  man  at  twenty  who  will  worry 
about  the  remote  contingency  of  old  age  at  sixty-five ;  that  the 
cost  is  very  much  higher  if  the  insurance  is  begun  at  an  ad- 


PENSION  MOVEMENT  IN  UNITED  STATES    393 

vanced  age.  A  policy  providing  an  income  of  $5  per  week, 
if  taken  out  at  the  age  of  thirty-five,  would  require  a  regular 
weekly  outlay  of  seventy  cents.  For  that  amount,  which  is 
over  $35  a  year,  he  may  purchase  a  thousand-dollar  life  insur- 
ance policy,  and  many  are  the  workingmen  who  prefer  such 
protection  of  the  family  to  protection  of  their  own  old  age.  As 
a  matter  of  fact,  the  old-age  annuity  policy  offered,  notwith- 
standing some  extensive  advertising,  has  failed  to  achieve  any 
popularity  among  the  wage-workers. 

Industrial  policy  Intermediate  policy 

$100  life  insurance  and  $100        $500  life  insurance  and  $100 

pension  beginning  at  65  pension  beginning  at  65 

Age  years  of  age  years  of  age 

Weekly  Annual  Quarterly 

premium  premium  premium 

20 $0.13  $12.66  $3.24 

25 .16  15.31  3.91 

30 .21  18.93  4.84 

35 .27  24.01  6.14 

40 .37  31.40  8.03 

45 .53  42.85  10.95 

50 .82  62.44  15.96 

All  these  forms  of  private  old-age  insurance  are  carried  by 
the  workingmen  entirely  at  their  own  expense,  fitly  termed  by 
Mr.  L.  W.  Squier,  "  Pensions  by  purchase."  The  combined 
results  of  all  of  them  are  altogether  negligible.  When  the 
American  pension  movement  is  spoken  of,  an  entirely  different 
tendency  is  meant,  or,  more  accurately,  two  tendencies : 

(1)  The  efforts  of  the  employers  and, 

(2)  State  efforts,  constituting  true  social  insurance. 
Enormous  publicity  has  been  given  within  recent  years  to 

the  establishment  of  pension  and  retirement  plans  by  certain 
corporations  employing  large  numbers  of  wage-workers.  Be- 
cause of  this  publicity  the  actual  results  achieved  have  loomed 
up  much  greater  than  they  really  were.  As  a  matter  of  fact, 
only  a  very  small  proportion  of  wage-workers  have  been  as 
yet  provided  for  through  these  establishment  funds.  Such 
funds  are  more  popular  in  the  railroad  industry  than  in  any 
other  field  of  industrial  activity.  But,  after  all,  the  official 
investigators  of  the  U.  S.  Bureau  of  Labor  were  able  to  dis- 
cover only  fourteen  such  railroad  funds,  of  which  that  of 
the  Baltimore  and  Ohio  Railroad,  existing  since  1884,  is  the 


394  SOCIAL  INSURANCE 

oldest  example;  and  the  other  large  funds  are  those  of  the 
Eastern  and  Western  Departments  of  the  Pennsylvania  Rail- 
road, that  of  the  Chicago  and  Northwestern  Railroad,  the 
Illinois  Central  Railroad,  and  the  Philadelphia  and  Reading 
system. 

The  total  mileage  of  all  the  railroads  possessing  such  pension 
funds  was  not  much  over  30,000,  or  from  10$  to  15$  of  the 
American  railroad  mileage.  The  total  expenditures  of  the  four- 
teen funds  were  not  much  over  $800,000,  and  the  number  of 
pensioners  4,638,  giving  an  average  of  about  $170  per  pen- 
sioner, or  $3  a  week. 

More  recently  Mr.  L.  W.  Squier,  in  his  study  of  Old  Age 
Dependency,  supplemented  the  data  of  the  official  investigation 
by  additional  inquiries  referring  to  the  years  1910  and  1911, 
and  as  a  result  four  or  five  railroad  companies  are  added  to 
the  field. 

A  characteristic  feature  of  all  these  railroad  pension  funds 
is  that  they  are  straight  grants  made  by  the  employer  and  out 
of  the  treasury  of  the  corporation,  without  any  contribution  by 
the  employee. 

A  certain  uniformity  exists  among  all  these  funds.  They 
usually  provide  for  optional  retirement  at  sixty-five  and  com- 
pulsory retirement  at  seventy  years  of  age.  With  one  or  two 
exceptions  the  amount  of  the  pension  provided  is  1$  of  the 
average  salary  for  ten  years  preceding  for  each  year  of  service, 
so  that  after  twenty-five  years  of  service,  one-fourth  of  the 
average  salary  would  constitute  the  pension.  A  long  period 
of  continuous  service,  twenty  or  twenty-five  years,  is  usually 
required;  in  fact,  the  age  of  entrance  in  most  railroads  is 
limited  to  forty  or  forty-five.  The  administration  is  entirely 
in  the  hands  of  the  employing  corporation,  and  notwithstand- 
ing all  rules,  the  granting  of  the  pension  in  each  individual 
case  depends  entirely  upon  the  administrative  board.  In  all 
pension  plans  the  fact  is  very  emphatically  underscored  that 
no  contractual  obligation  on  the  part  of  the  corporation  exists, 
and  that  the  pension  scheme  may  be  modified,  suspended,  or 
discontinued  at  the  will  of  the  employer. 

It  may  be  claimed  for  this  system  of  pensions  that  it  has 
solved  the  superannuation  problem  for  the  railroads  which  have 
adopted  them. 

The  drawbacks  of  these  pension  systems  have  been  stated 


PENSION  MOVEMENT  IN  UNITED  STATES    395 

so  frequently  that  it  seems  unnecessary  to  repeat  the  familiar 
arguments.  "  Any  plan,"  says  Professor  H.  R.  Seager, 
"  which  ties  a  man  to  his  job  by  discouraging  him  from 
changing  from  one  employer  to  another  is  undesirable.  All 
economists  recognize  that  the  mobility  of  labor  is  an  impor- 
tant factor  in  securing  for  wage-earners  higher  earnings  and 
better  conditions.  These  pension  plans  are  intended  to  and 
do  oppose  the  mobility  of  labor." 

But  even  more  harmful  than  the  interference  with  the  in- 
dividual free  mobility  of  labor  are  the  obstacles  to  a  concerted 
action  of  labor  and  the  power  of  repression  which  the  right  to 
deny  the  pension  grants.  Many  American  writers  are  ready 
to  see  in  these  establishment  funds  the  possible  solution  of 
the  old-age  problem.  Every  announcement  of  the  organiza- 
tion of  a  new  pension  fund  is  hailed  with  extravagant  praise 
and  hope. 

But  European  experience  has  conclusively  demonstrated  that 
a  radical  change  in  the  nature  of  corporation  pension  funds, 
which  would  destroy  many  of  its  most  valuable  features  (from 
the  employer's  point  of  view),  can  only  be  accomplished 
through  governmental  action.  Only  through  appropriate 
legislation  can  the  arbitrary  character  of  the  pension  grant  be 
abolished  and  the  establishment  fund  virtually  transferred 
to  an  industry  fund,  the  fulfilment  of  assumed  obligations 
exacted,  the  interests  of  employees  leaving  the  service  volun- 
tarily or  through  dismissal  safeguarded,  etc.  Under  such  regu- 
lation as  is  found  in  connection  with  railroad  funds  through- 
out civilized  Europe,  the  establishment  funds  become  true 
organs  of  social  insurance. 

Gradually  the  establishment  pension  system  is  spreading 
from  the  railroads  to  industrial  establishments,  but  with  a  much 
lower  rate  of  speed  than  is  commonly  supposed.  The  Inter- 
national Harvester  Company  and  the  Standard  Oil  Company 
are  quoted  as  famous  examples,  though  the  Carnegie  Relief 
Fund  of  the  United  States  Steel  Corporation  is  perhaps  the 
greatest  of  them.  Only  a  few  such  funds  were  discovered  in 
1907  at  the  time  the  federal  investigation  was  made.  A  more 
recent  effort  to  list  these  establishment  pension  funds  was  made 
by  L.  W.  Squier,  who  had  sent  out  over  one  thousand  inquiries 
to  the  largest  employers  of  labor,  and  succeeded  in  bringing 
together  evidence  of  only  twenty-nine  systems  for  old-age  pen- 


396  SOCIAL  INSURANCE 

sions  of  some  kind  or  other,  and  these  twenty-nine  corporations 
included  coal,  iron,  and  steel  companies,  other  industrial  enter- 
prises, public  service  corporations,  meat-packers,  mercantile 
establishments,  and  even  banks. 

The  inquiry  of  the  Massachusetts  Commission  on  Old- Age 
Pensions,  limited  to  the  employers  of  that  state,  has  yielded 
similar  results.  Circulars  were  sent  to  over  1,000  corporations 
and  individual  employers  in  that  state ;  and  though  362  replies 
were  received,  only  four  of  the  firms  claimed  a  regular  system 
of  retirement  pensions,  though  many  other  concerns  reported 
that  occasionally  pensions  are  granted  by  special  vote. 

In  other  words,  even  in  the  railroad  industry,  pension  funds 
protect  a  very  small  proportion  of  the  employees,  and  in  other 
lines  of  commercial  and  industrial  activity  the  pension  funds, 
notwithstanding  all  the  publicity  that  is  given  them,  are  very 
exceptional  indeed.  The  loud  advertising  given  to  the  funds 
at  the  time  of  inauguration  is  likely  to  exaggerate  the  fre- 
quency of  such  funds  in  industry  at  large.  Moreover,  not 
many  of  the  pension  funds  or  pension  systems  discovered  in 
the  various  services  referred  to  are  to  be  classified  as  satisfac- 
tory. It  is  admitted  by  many  of  the  twenty-nine  firms  men- 
tioned by  Mr.  Squier  that  no  universal  pension  system  exists, 
but  employees  are  occasionally  pensioned  when,  in  the  opinion 
of  the  employers,  they  deserve  it. 

Even  the  best  organized  pension  funds  are  not  free  from 
this  charge  of  arbitrariness.  The  following  quotation  from 
the  by-laws  of  the  pension  system  of  the  International  Har- 
vester Company,  which  constitutes  its  concluding  paragraph,  is 
characteristic  of  the  entire  pension  movement  in  large  Ameri- 
can establishments: 

"  Neither  the  establishment  of  this  system  nor  the  granting  of  a 
pension,  nor  any  other  action  now  or  hereafter  taken  by  the  Pension 
Board,  or  by  the  Officers  of  the  Company,  shall  be  held  or  construed 
as  creating  a  contract,  or  giving  to  any  officer,  agent,  or  employee 
a  right  to  be  retained  in  the  service  or  any  right  to  any  pension 
allowance,  and  the  company  expressly  reserves  unaffected  hereby,  its 
right  to  discharge  without  liability,  other  than  for  salary  or  wages 
due  and  unpaid,  any  employee,  whenever  the  interests  of  the  Com- 
pany may  in  its  judgment  so  require." 

The  small  social  value  of  such  provisions  for  old  age  and 
their  demoralizing  character  upon  the  spirit  of  self-reliance 


PENSION  MOVEMENT  IN  UNITED  STATES    397 

among  the  wage-workers,  need  not  be  argued  at  great  length. 

Among  the  railroad  companies  the  principle  of  straight 
"  gratuitous  "  pensions  has  been  pretty  well  established.  But 
among  the  industrial  establishments  a  greater  variety  of  sys- 
tems exists.  Both  straight  pensions  and  contributory  systems 
of  old-age  insurance  (either  compulsory  or  voluntary)  exist, 
though  the  straight,  non-contributing  pensions  are  about  twice 
as  frequent.  Of  ninety  firms  mentioned  in  the  various  investi- 
gations quoted,  some  twenty  were  granting  straight  pensions, 
sixty  had  contributing  schemes,  and  in  ten  the  granting  of 
pensions  was  occasional. 

Naturally,  there  is  considerable  variety  in  details.  In 
straight  pensions  the  age  of  compulsory  retirement  is  seventy 
or  sixty-five,  seldom  below  that.  The  prevailing  scale  is  simi- 
lar to  that  of  the  railroads,  \%  for  each  year  of  service, — 
which  is  far  from  being  a  liberal  provision.  When  contributing 
systems  exist,  this  provision  is  subject  to  wide  fluctuations. 
The  amount  of  contributions  in  some  cases  is  purely  nominal 
(10  cents  per  month  in  one  case,  for  instance),  in  others  it 
amounts  to  3$  or  4$  of  the  salary.  Where  these  contributory 
systems  exist,  provision  is  usually  made  for  a  return  of  the 
contributions  in  case  of  leaving  the  service,  and  for  representa- 
tion of  the  assured  upon  the  management  of  the  fund.  Perhaps 
these  are  the  very  reasons  why  these  contributory  systems  are 
not  popular  among  the  employers. 

To  sum  up  this  very  brief  review  of  all  existing  forms  of 
voluntary  old-age  insurance  or  private  old-age  provision: 

The  results  achieved  as  yet  are  very  insignificant  quan- 
titatively, and  far  from  satisfactory  qualitatively. 

The  activity  of  labor  unions  is  extremely  small  because 
the  problem  is  almost  beyond  them,  and  they  limit  their  bene- 
fit features  to  death  and  sickness  insurance.  Fraternal  orders, 
with  all  their  difficulties  of  an  actuarial  character  before  them, 
have  kept  out  of  the  field  of  old-age  insurance,  nor  is  it  formally 
open  to  them  by  law. 

Private  insurance  companies,  whether  of  the  ordinary  or 
industrial  type,  have  recently  made  some  efforts  to  popularize 
old-age  annuities,  but  without  any  marked  degree  of  success. 
A  few — very  few — large  corporations  have  introduced  super- 
annuation systems  either  by  contributing  pension  funds  or  by 
straight  gratuitous  pension  systems,  but  these  are  accompanied 


398  SOCIAL  INSURANCE 

by  well  defined  and  generally  recognized  dangers  to  the  eco- 
nomic independence  of  the  working  class. 

It  is  becoming  quite  evident  that  a  national  policy  toward 
the  solution  of  the  problem  is  strongly  indicated,  that  the  re- 
liance upon  the  good  will  and  judgment  of  corporations  is 
Utopian.  In  this  respect  past  history  but  repeats  itself.  More 
than  seventeen  years  ago  France  went  through  the  process  of 
evolution.  In  the  report  of  the  U.  S.  Commissioner  of  Labor 
on  "  Workmen's  Insurance  and  Compensation  Systems  in 
Europe,"  we  read: 

"  In  1895  when  the  various  proposals  for  a  national  old  age  pension 
system  were  universally  discussed,  the  argument  was  often  heard 
that  such  a  compulsory  system  was  hardly  necessary  in  view  of  the 
rapid  growth  of  establishment  funds  through  efforts  of  the  better 
class  of  employees.  A  statistical  investigation  of  such  funds  was 
requested  by  the  parliamentary  commission  .  .  .  and  undertaken 
by  the  Bureau  of  Labor.  .  .  .  The  investigation  showed  conclusively 
that  in  the  general  problem  of  old  age  provision  for  industrial 
workers,  these  establishment  funds  were  of  very  little  importance, 
less  than  100,000,  or  about  3.7$,  of  the  industrial  employees  being 
protected  by  them."  3 

It  is  doubtful  whether  a  similar  investigation  undertaken 
in  this  country  at  present  would  show  even  as  high  a  percent- 
age of  employees  provided  for,  especially  if  the  railroad  funds 
be  excepted,  which  were  not  included  in  the  French  investiga- 
tion. Unfortunately,  the  investigation  of  the  U.  S.  Bureau  of 
Labor,  though  containing  detailed  descriptions  of  many  indi- 
vidual funds,  fails  to  answer  this  all-important  question.  In 
any  case,  while  the  results  of  the  French  investigation  stimu- 
lated the  movement  for  a  national  system,  governmental  regu- 
lation of  the  existing  establishment  funds  was  accomplished 
as  early  as  1895,  and  such  governmental  supervision  is  the 
crying  need  of  the  existing  pension  funds  and  systems  in  this 
country  to-day. 

In  marked  distinction  to  the  total  absence  of  any  govern- 
mental activity  in  the  field  of  sickness  insurance,  a  few  gov- 
ernmental efforts  have  been  made  and  some  results  have  been 
accomplished  in  old-age  provision.  These  may  be  classified  as 
follows : 

^Workmen's  Insurance  and  Compensation  Systems  in  Europe.  Twenty- 
fourth  Annual  Report  of  the  N.  J.  Commissioner  of  Labor.  Vol.  I,  Chap. 
IV,  p.  873. 


PENSION  MOVEMENT  IN  UNITED  STATES    399 

(1)  The  pensioning  of  government  employees. 

(2)  The  system  of  war  pensions. 

(3)  The  provision  for  voluntary  insurance  in  social  agencies. 

(4)  The  inception  of  a  movement  for  old-age  pensions. 
The  provision  for  old-age  pensions  for  government  employees 

is  important  as  an  admission  of  the  necessity  of  pensions  to 
meet  the  problems  of  old  age  and  superannuation.  It  is  also 
important  in  itself  because  of  the  large  and  growing  number  of 
government  employees.  How  large  this  number  is,  is  scarcely 
appreciated,  in  view  of  the  narrow  interpretation  of  the  term 
"  government  employee. "  The  Federal  Government  alone  em- 
ploys perhaps  over  half  a  million  persons.  To  this  must  be 
added  the  employees  of  state  governments,  and  the  still  more 
important  army  of  municipal  employees,  which  includes  such 
large  bodies  of  men  and  women  as  the  police,  the  fire  depart- 
ment service,  the  street  cleaning  service,  hundreds  of  thousands 
of  school-teachers,  the  sanitary  service  (hospitals,  asylums) ,  the 
large  clerical  service,  etc.  While  no  complete  statistical  data 
are  available,  it  is  quite  certain  that  the  number  of  govern- 
mental employees  of  all  these  groups  exceeds  1,000,000. 

Even  of  this  number  a  majority  is  as  yet  unprovided  for. 
But  proportionately  government  employees  have  fared  better 
than  employees  of  private  corporations,  especially  as  far  as 
municipal  employees  are  concerned.4 

An  investigation  by  the  U.  S.  Bureau  of  Labor,  made  in  1910, 
demonstrated  48  funds  or  systems  of  retirement  of  teachers; 
41  of  these  are  confined  to  teachers  employed  by  special 
municipalities.  Six  funds  cover  teachers  of  entire  states. 
These  are  Connecticut,  Maryland,  Massachusetts,  New  Jersey, 
Rhode  Island,  and  Virginia.  Of  the  twenty-five  largest  cities 
in  the  United  States  all  except  one  possess  such  retirement 
funds,  so  that  it  may  safely  be  said  that  teachers  in  large  cities 
are  well  provided  for;  and  only  those  in  the  rural  districts 
(with  the  exception  of  the  few  states  enumerated)  and  to  some 
extent  in  the  smaller  cities  as  yet  have  no  provision  made  for 
their  old  age.  Still  more  numerous  are  the  policemen's  and 
firemen's  funds,  of  which  167  were  recorded  in  the  official  in- 

4  L.  W.  Squier:  Old  Age  Dependency  in  the  United  States,  Chaps.  V 
and  VI,  pp.  139-228. — Pension  Funds  for  Municipal  Employees  and 
Railroad  Pension  Systems  in  the  United  States  (61st  Cong.,  2nd  Sess., 
Doc.  427). 


400  SOCIAL  INSURANCE 

vestigation  of  the  Bureau  of  Labor.  Of  the  seventy-five 
largest  cities,  sixty  had  such  funds  or  systems;  of  the  forty 
largest  cities  only  six  lacked  them.  From  the  point  of  view 
of  old-age  pensions,  the  policemen  and  firemen,  therefore,  are 
the  best  provided  of  all  American  wage-workers.. ^/;o 

Outside  of  these  well-defined  groups  of  employees,  however, 
only  a  very  few  pension  funds  exist.  The  official  investiga- 
tions, with  all  the  powers  of  inquiry  at  their  disposal,  included 
only  four  such  funds  in  their  list.  Some  of  these  funds  are 
of  a  recent  origin,  but  others  have  been  in  existence  for 
twenty  or  thirty  years.  The  curious  question  arises  why  the 
existence  of  these  many  pension  and  retirement  funds  scat- 
tered throughout  the  country  has  not  of  itself  created  an  inter- 
est in  the  masses  of  workingmen  (from  whom,  after  all,  all 
policemen  and  firemen  and  a  large  proportion  of  teachers  are 
recruited),  for  old-age  retirement  methods, — no  demand  for 
the  extension  of  similar  advantages  to  the  industrial  army  as  a 
whole.  Perhaps  a  plausible  explanation  of  this  fact  may  be 
found  in  the  peculiar  attitude  of  the  American  people  to  gov- 
ernment service.  Notwithstanding  the  formal  extension  of 
civil  service  principles  to  various  municipalities,  the  real 
situation  is  a  close  connection  between  "  government  jobs  " 
(city  "  jobs  "  especially)  and  political  influence  or  "  graft." 
A  policeman  or  fireman  receives  his  appointment  because  of 
service  rendered  to  the  "  organization."  It  is,  therefore,  a 
privileged  position  to  which  the  ordinary  principles  of  a  wage- 
contract  do  not  apply.  His  wage  is  usually  very  much  higher 
than  what  he  could  command  in  ordinary  life,  his  emolu- 
ments even  higher.  The  pension  fund  is  simply  one  of  the 
many  privileges  of  the  city  "  job." 

Unfortunately,  the  conditions  of  most  of  these  pension  funds 
are  such  as  to  corroborate  this  point  of  view.  The  official 
investigation  made  by  the  Bureau  of  Labor  is  too  brief  to  throw 
much  light  on  this  subject.  It  is  little  more  than  a  list  of  the 
existing  pension  funds,  with  the  few  essential  data  presented 
in  tabular  form,  but  no  information  as  to  the  actual  mode  of 
operation.  But  even  an  inspection  of  these  data  leads  to  that 
criticism.  Over  one-third  of  the  pension  funds  are  supported 
by  the  government  only.  While  the  others  are  formally  con- 
tributory systems,  the  contributions  of  the  employees  are  so 
ludicrously  small  in  about  40<£  of  these  funds  that  they  repre- 


PENSION  MOVEMENT  IN  UNITED  STATES    401 

sent  but  a  very  small  proportion  of  the  pension  cost.  This 
of  itself  is  no  great  misfortune.  It  simply  means  that  we  are 
dealing  here  with  straight  or  nearly  straight  service  pensions, 
provided  such  is  the  legal  status  of  the  fund,  and  the  muni- 
cipality or  the  state  plainly  assumes  the  responsibility.  As  a 
matter  of  fact,  this  is  true  of  very  few  funds  only.  In  most 
of  them,  in  addition  to  the  contributions  of  the  employees, 
various  miscellaneous  sources  of  revenue  exist,  the  proceeds 
of  which  are  accidental,  and  stand  in  no  relation  to  the 
obligations  assumed,  such  as  a  percentage  of  the  excise  money, 
contributions  from  liquor  tax,  or  a  definite  appropriation  from 
the  state,  or  fines  and  deductions  from  salaries,  proceeds  from 
sale  of  condemned  material,  a  part  of  tax  collected  from  fire 
insurance  companies,  police-court  fines,  dog  licenses,  and  what 
not.  Under  such  circumstances  a  special  act  of  Providence 
would  be  necessary  to  establish  the  proper  balance  between 
revenues  and  obligations  assumed;  and,  as  a  matter  of  fact, 
such  balance  exists  in  very  few  funds  only.  From  an  actu- 
arial point  of  view  most  of  these  funds  are  insolvent,  and 
in  the  absence  of  a  state  or  municipal  guarantee,  a  crisis  at 
some  future  time  seems  inevitable. 

Yet,  in  view  of  this  lack  of  financial  soundness,  the  rules 
for  the  granting  of  pensions  are  extravagant  to  an  extreme. 
While  the  provisions  are  naturally  subject  to  many  variations, 
in  the  majority  of  cases  a  very  substantial  pension  of  50$  of 
wages  is  granted,  after  twenty  years  of  service  in  case  of 
voluntary  retirement.  In  some  of  the  funds  proof  of  inca- 
pacity is  required ;  but  this  usually  is  purely  perfunctory,  and 
the  demoralizing  effect  is  that  men  and  women  in  the  prime 
of  life,  often  not  over  forty-five  years  of  age,  receive  a  sub- 
stantial pension  from  the  city  government,  at  the  same  time 
drawing  income  from  other  employment  or  professional  work. 

While  this  situation  is  true  of  employees  of  various  mu- 
nicipalities, the  situation  is  diametrically  different  in  the  case 
of  the  army  of  employees  of  the  United  States  Government, 
which  numbers  several  hundred  thousands,  and  possibly  half 
a  million.  With  the  exception  of  employees  of  the  military  and 
naval  establishments,  no  provision  for  the  pensioning  and 
retirement  of  public  employees  exists.  In  this,  as  has  been 
frequently  pointed  out  in  the  discussions  of  recent  years,  the 
United  States  Government  occupies  a  position  that  is  unique 


402  SOCIAL  INSURANCE 

among  all  civilized  nations.  Not  only  does  no  provision  exist, 
but  until  very  recent  years  the  situation  was  practically  hope- 
less. In  Washington  there  was  no  less  popular  cause  than 
that  of  a  "  civil  pension  list."  The  government  employees  bit- 
terly complained  that  they  had  no  friend  in  Congress,  and  the 
members  of  the  National  Legislature  absolutely  refused  to  take 
any  interest  in  their  cause,  because  of  the  general  conviction 
that  such  a  measure  would  be  extremely  unpopular  among 
their  constituencies  at  home.  It  was  customary  in  newspaper 
discussions  to  explain  this  attitude  by  the  resentment  which 
the  country  at  large  felt  towards  the  excessive  burden  of  war 
pensions,  and  the  unwillingness  to  add  an  additional  burden 
for  civil  pensions.  But  when  the  repeated  extensions  of  the 
war  pension  system  at  an  enormous  cost  within  recent  years 
are  considered,  the  explanation  seems  to  fit  but  little  with 
the  actual  facts. 

Of  late  the  movement  for  civil  service  pensions  has  grown. 
Within  the  ranks  of  the  employees  themselves  it  has  grown 
because  the  problem  of  old  age  is  facing  an  increasing  num- 
ber of  older  employees.  And  the  administrative  branch  of 
the  Government  was  forced  to  face  the  problem  because  of  the 
serious  difficulty  of  preserving  any  degree  of  efficiency  with  a 
force  badly  suffering  from  superannuation.  Repeatedly,  heads 
of  executive  departments,  and  occupants  of  the  presidential 
office  as  well,  have  come  out  with  a  strong  plea  for  some  meas- 
ure of  relief,  so  as  to  make  the  retirement  of  superannuated 
employees  possible,  and  these  pleas  were  not  without  some 
effect  upon  the  legislative  body. 

Nothing,  however,  has  as  yet  been  accomplished,  because  of 
lack  of  agreement  as  to  the  best  method  of  procedure.  The 
discussions  leave  no  doubt  that  as  far  as  the  Government  is  con- 
cerned, it  has  taken  the  typical  attitude  of  the  employer ;  it  is 
the  necessity  of  finding  a  solution  of  the  superannuation  prob- 
lem, of  finding  a  method  of  preserving  a  standard  of  efficiency 
rather  than  of  old-age  provision,  that  is  the  moving  force  of 
all  the  pension  agitation,  hence  the  effort  to  accomplish  this 
result  with  the  least  possible  expense  to  the  national  treasury. 
Very  few  voices  are  heard  in  favor  of  a  straight  pension  system. 
Not  only  is  the  preponderance  of  opinion  among  the  adminis- 
trative and  legislative  circles  in  favor  of  a  contributory  sys- 
tem, but  the  demand  is  usually  made  that  the  entire  cost  of 


PENSION  MOVEMENT  IN  UNITED  STATES    403 

retirement  on  a  pension  be  placed  upon  the  shoulders  of  the 
employees.  It  is  argued  that  a  position  in  the  civil  service 
is  in  itself  a  privilege,  and  that  there  is  no  reason  why  the 
bureaucracy  should  be  given  the  tremendous  economic  advan- 
tage of  a  gratuitous  pension  at  the  expense  of  the  nation  at 
large,  which  does  not  enjoy  such  advantage. 

This  at  least  represents  a  definite  point  of  view.  But  noth- 
ing except  ignorance  of  the  elementary  principles  underlying 
the  pension  problem  can  explain  the  demand  often  made,  that 
even  the  immediate  retirement  of  the  employees  already  super- 
annuated be  placed  upon  the  body  of  employees  themselves; 
for  this  would  place  the  duty  of  supporting  the  older  members 
upon  the  younger  men  and  women.  An  intermediate  plan 
(strongly  advocated  by  the  actuary  Herbert  D.  Brown)  pro- 
poses a  compromise:  that  the  retirement  of  the  old  men  be 
accomplished  at  the  expense  of  the  Government,  this  cost 
being  gradually  reduced  as  the  older  men  die  out,  and  the 
younger  generation  accumulate,  through  its  own  contribu- 
tions, a  sufficient  fund  for  retirement. 

It  is  of  more  than  local  interest  to  observe  that  among  the 
employees  themselves  the  same  cleavage  into  two  camps  has 
taken  place.  The  older  men,  as  a  rule,  prefer  a  straight  pen- 
sion. A  contributory  system  offers  nothing  to  them;  they 
expect  retirement  either  immediately  or  in  the  near  future. 
They  have  lost  all  hope  of  leaving  government  employ  for 
more  remunerative  opportunities.  On  the  other  hand,  the 
younger  men  think  more  lightly  of  their  old  age ;  they  are  not 
sure  that  they  will  survive  the  age  of  retirement;  they  are 
still  less  sure  that  they  will  be  in  government  service  by  the 
time  they  reach  that  age;  their  main  interest  in  fact,  under 
pressure  of  the  rising  cost  of  living,  with  which  the  general 
standard  of  salaries  has  not  kept  abreast,  lies  in  an  increase 
of  present  wages ;  and  they  fear  that  the  grant  of  a  straight 
pension  will  clog  the  movement  for  higher  wages.  Under  influ- 
ence of  a  very  able  and  energetic  propaganda,  many  of  them 
have  been  convinced  that  a  contributory  scheme  for  old-age 
pensions  would  leave  the  movement  for  higher  wages  intact, 
and  since,  in  most  of  the  contributory  plans  suggested,  pro- 
vision for  return  of  contributions  in  case  of  leaving  the  service 
has  been  embodied,  a  good  many  of  them  have  come  out  for 
contributory  systems.  At  the  bottom  of  this  is  the  view  that 


404  SOCIAL  INSURANCE 

an  old-age  pension,  no  matter  how  granted,  is  after  all  but  a 
deferred  wage,  and  they  do  not  wish  to  lose  that  deferred  part 
of  their  pay  in  case  of  death  or  resignation. 

It  is  unfortunate  that  this  division  of  opinion  has  furnished 
a  very  effective  argument  for  further  delay,  so  that  the  body 
of  four  or  five  hundred  thousand  government  employees  is 
no  nearer  a  solution  of  the  old-age  problem  than  it  was  five 
years  ago,  and  it  is  doubly  unfortunate  in  view  of  the  tre- 
mendous impetus  any  pension  system  for  these  governmental 
employees  would  have  given  to  the  whole  American  pension 
movement.  But  it  is  very  significant  that  notwithstanding 
the  attraction  of  a  "  gratuitous  "  system  of  old-age  pensions, 
the  contributory  system,  i.e.,  a  system  of  compulsory  old-age  in- 
surance, has  succeeded  in  gaining  a  very  high  percentage  of  ad- 
herents. For,  after  all,  mutatis  mutandis,  the  same  arguments 
apply  to  employees  of  large  industrial  corporations,  and  with 
an  even  greater  force  because  of  a  lesser  security  of  tenure,  and 
the  very  much  greater  shifting  of  the  labor  force  in  such 
corporations. 

It  is  a  very  singular  feature  of  the  old-age  pension 
situation  in  the  United  States,  that  while  so  little  has 
been  accomplished  for  the  permanent  employees  of  the  Govern- 
ment, the  pension  for  temporary  services — the  so-called  war 
pension — has  achieved  such  tremendous  development.  After 
all,  it  is  idle  to  speak  of  a  popular  system  of  old-age  pensions 
as  a  radical  departure  from  American  traditions,  when  our 
pension  roll  numbers  several  hundred  thousand  more  names 
than  that  of  Great  Britain.  It  is  preposterous  to  claim  that  the 
cost  of  such  a  pension  would  be  excessive,  when  the  cost  of  our 
pensions  is  over  $160,000,000,  or  more  than  three  times  as  great 
as  that  of  the  British  pension  system.  In  the  face  of  such  a 
cost,  it  is  childish  to  consider  the  system  of  war  pensions  as  a 
sentimental  problem  only,  and  to  speak  of  the  millions  spent 
for  war  pensions  as  the  cost  of  the  "  Civil  War."  We  are 
clearly  dealing  here  with  an  economic  measure  which  aims  to 
solve  the  problem  of  dependent  old  age  and  widowhood.  No 
state  legislator  will  claim,  unless  it  be  in  a  peroration  to  a 
Fourth  of  July  outburst  of  oratory,  that  the  constant  pressure 
for  extension  of  war-pension  benefits,  and  the  systematic 
political  work  which  creates  such  pressure,  which  neither  party 
has  had  the  courage  to  resist — is  all  the  result  of  patriotic 


PENSION  MOVEMENT  IN  UNITED  STATES    405 

enthusiasm  only.  It  is  necessary  to  face  the  situation  frankly, 
and  applying  to  the  system  of  war  pensions  the  ordinary 
standard  by  which  any  piece  of  legislation  is  judged,  inquire 
how  far  it  meets  the  problems,  how  efficiently,  economically, 
and  justly  it  may  work  for  their  solution. 

As  is  well  known,  the  total  cost  of  these  pensions  has  been 
enormous.  The  increase  in  the  annual  disbursements  for  war 
pensions  during  the  last  four  or  five  decades  is  shown  elo- 
quently in  the  following  figures: 

Million  Million  Million 

Year  dollars     Tear  dollars     Year  dollars 

1867 21  1890 106  1907 138 

1879 33  1891 117  1908 153 

1880 57  1892 139  1909 162 

1888 79  1893 157  1910 160 

1889 89  1894 140  1912 153 

Lovers  of  startling  figures  may  obtain  some  satisfaction  from 
the  information  that  the  total  cost  up  to  June  30,  1912,  not 
counting  the  administrative  expenses,  reached  the  neat  sum  of 
$4,383,368,163.88.  But  the  amount  itself  need  not  frighten 
any  one.  The  question  is  how  it  was  expended  and  what  it 
has  accomplished.  In  the  little  table  above,  certain  years 
were  picked  out  which  indicated  the  development  of  the  pen- 
sion system.  After  a  normal  growth  from  1867  to  1879,  there  is 
a  sudden  increase  in  1880 ;  similarly  after  the  gradual  increase 
from  1880  to  1888,  a  sudden  rapid  rise  in  the  four  years  1889- 
1893,  when  the  cost  has  nearly  doubled  (from  $79,000,000  to 
$157,000,000).  From  1894  to  1907  the  total  amount  of  pen- 
sions fluctuated  between  $138,000,000  and  $145,000,000,  but  in 
1908  again  suddenly  increased  to  $153,000,000,  and  in  1909  to 
$162,000,000,  declining  since  to  $153,000,000  in  1912. 

The  sudden  increases  are  due  to  legislative  changes.  The 
original  act  of  July  14,  1862,  provided  pensions  for  disabled 
soldiers,  and  for  widows,  orphan  children,  and  dependent 
mothers  of  deceased  soldiers,  the  amounts  varying  from  $8 
to  $30  per  month.  The  increase  of  expenditures  in  1880  was 
due  to  the  arrears  act  of  1879,  which  provided  for  payment  of 
back  pensions  from  the  time  disability  was  incurred,  i.e.,  for 
from  fifteen  to  eighteen  years.  Neither  the  original  act  nor 
the  latter  measure  took  any  cognizance  of  economic  need  ex- 


406  SOCIAL  INSURANCE 

cept  as  to  dependent  mothers.  This  was  followed  by  the  ninety- 
days  pension  act  of  1890,  in  which  the  very  lenient  requirement 
as  to  the  length  of  military  service  (only  ninety  days)  was 
combined  with  the  qualification  of  mental  or  physical  disability, 
and  the  pension  amounts  were  from  $6  to  $12  per  month.  The 
act  explains  the  rapid  increase  of  expenditures  in  1890-1893. 

Few  of  the  changes  took  the  economic  circumstances  into 
consideration.  The  extensions  were  based  primarily  upon  a 
more  lenient  attitude  towards  the  requirement  of  past  services 
and  records  rather  than  upon  any  effort  to  adjust  this  annual 
distribution  of  enormous  sums  to  economic  need.  As  a  result 
the  preposterous  situation  is  created  that  various  sized  por- 
tions of  this  official  melon  are  given  to  thousands  of  people 
who  may  not  at  all  require  it.  No  satisfactory  statistics  on 
this  point  exist,  but  it  is  a  matter  of  common  knowledge  not 
only  that  pensions  are  obtained  upon  fraudulent  representa- 
tion of  past  services,  forged  records,  fictitious  marriage  certifi- 
cates, etc., — an  aspect  of  the  problem  sufficiently  important  in 
itself,  which  need  not  be  discussed  here  at  any  length  how- 
ever,— but  what  is  economically  much  more  important,  a  large 
proportion  of  this  amount  goes  to  individuals  who  have  no 
economic  need  whatsoever  of  financial  assistance. 

How  large  this  economic  waste  must  be,  may  be  approxi- 
mately summarized  from  these  figures.  The  total  number  of 
pensioners  on  the  rolls,  which  by  1870  was  about  200,000,  has 
been  rapidly  growing,  until  by  1890  it  exceeded  half  a  million. 
Within  the  next  three  years  it  jumped  to  906,000,  and  by  1902 
reached  nearly  a  million.  In  the  natural  course  of  events  it  has 
been  declining  since  then,  so  that  by  1912  it  was  860,000.  Of 
course  invalids  of  war  do  not  constitute  the  entire  number. 
The  proportion  of  widows  and  orphans  has  been  growing  until 
it  now  constitutes  nearly  37$  of  the  pensioners.  Nevertheless, 
the  majority  of  the  pensioners  is  made  up  of  men  who  must 
be  of  very  advanced  age — over  sixty-five  at  least.  The  num- 
ber of  these  invalids  in  1893  reached  its  highest  numbers,  760,- 
000.  Since  1898  it  has  been  quite  regularly  declining,  from 
759,000  to  538,000  in  1912.  But  even  with  that  smaller  num- 
ber it  represents  a  very  large  proportion  of  all  persons  over 
sixty-five.  For  the  total  number  of  males  over  sixty-five  in 
1910  was  1,986,000.  In  the  nature  of  things,  however,  very  few 
foreign-born  men  are  on  the  pension  lists,  and  comparatively 


PENSION  MOVEMENT  IN  UNITED  STATES    407 

few  persons  of  the  negro  or  other  colored  races.  The  total 
number  of  native  white  persons  sixty-five  years  or  over  in 
1910  was  1,117,000.  The  number  of  war  pensioners  was 
over  one-half  of  that,  or  in  other  words,  every  second  native 
white  man  over  sixty-five  was  receiving  a  pension. 

As  a  matter  of  fact,  the  proportion  is  undoubtedly  greater 
than  one-half,  at  least  in  certain  portions  of  the  country,  for 
the  national  pension  system  does  not  apply  to  the  aged  sur- 
vivors of  the  Confederate  cause.  Moreover,  several  Southern 
states  have  pension  systems  of  their  own.  According  to  a 
special  study  made  by  Professor  W.  H.  Glasson  some  years 
ago,5  eleven  states  spend  over  $4,000,000  anually  for  some 
85,000  pensioners,  of  whom  some  60,000  are  invalid  soldiers, 
and  the  remainder  widows.  It  is  a  safe  estimate  that  with  the 
South  (or  at  least  the  aged  persons  of  the  South)  excluded, 
nearly  two-thirds  of  the  native  white  persons  over  sixty-five 
years  of  age  are  receiving  a  federal  pension. 

Whether  these  two-thirds  of  the  native  white  old  men  have 
really  participated  in  the  war  and  whether  from  a  patriotic 
or  moral  or  sentimental  point  of  view  they  "  deserve  "  their 
pensions  for  sufficiently  valuable  services  rendered  to  the  state 
or  nation,  is  a  question  of  very  little  economic  importance. 
But  do  they  really  represent  the  needy  portion  of  the  aged 
population?  A  plausibly  affirmative  answer  is  given  to  this 
question  by  some  very  careful  students.  "  Since  the  great 
majority  of  the  old  soldiers  came  from  manual  occupations,  it 
seems  fair  to  presume  that  the  military  pension  system  has 
acted  as  a  workingmen's  pension  system,"  says  Professor 
Charles  K.  Henderson.6  It  must  be  remembered,  however, 
that  the  vast  majority  of  the  Civil  War  veterans  had  left  the 
military  service  at  a  very  early  age ;  that  a  numerically  large 
wage-working  class  is  a  rather  recent  element  of  American  so- 
ciety; that  the  development  of  industry  after  the  Civil  War 
and  the  energetic  exploitation  of  natural  resources  have  cre- 
ated a  large  number  of  individual  opportunities;  that  the 
shifting  from  the  wage-working  to  the  middle  class,  which  is 
still  to  some  extent  a  feature  of  American  life,  was  very  much 
more  common  forty  or  fifty  years  ago;  that  in  so  far  as  the 
growth  of  American  industry  created  a  demand  for  wage- 

6  Review  of  Reviews,  July,  1907. 

•  Industrial  Insurance  in  the  United  States,  pp.  276-77. 


408 


SOCIAL  INSURANCE 


labor,  this  demand  has  been  largely  met  by  a  constantly  grow- 
ing current  of  European  immigration ;  and  that  this  very  cur- 
rent had  lifted  the  native  American  into  the  middle  class. 
Add  to  this  the  important  fact  that  very  important  privileges 
had  been  granted  to  Civil  War  veterans,  in  homestead  pre- 
emptions, in  civil  service  of  all  branches,  federal,  state,  and 
municipal,  and  the  conclusion  is  inevitable  that: 

The  most  singular  feature  of  the  American  pension  system 
is  that  it  primarily  redounds  to  the  advantage  of  a  class  least  in 
need  of  old-age  pensions.  This,  and  not  the  evidences  of  fraud 
in  obtaining  a  pension,  is  the  gravest  indictment  of  the  pension 
system,  with  its  annual  expenditure  of  $160,000,000.  It  is 
naturally  quite  difficult  to  establish  the  truth  of  this  conclusion 
statistically.  Nevertheless,  a  few  interesting  statisical  con- 
siderations may  not  be  out  of  place.  In  the  following  table  the 
distribution  of  men  over  sixty-five  years  of  age  in  gainful 
occupations  is  given  according  to  the  five  well-known  occupa- 
tions, as  classified  by  the  Census,  separately  for  native  whites 
and  foreign  whites. 


MALE  PERSONS  SIXTY-FIVE  OR  OVER  IN  GAINFUL  OCCUPATIONS 

1900 


Occupational 
group 


Agriculture  364,552 

Professional  service 36,149 

Domestic  and  personal  service  . .  47,798 

Trade  and  transportation 81,026 

Manufacturing    and    mechanical 

pursuits  111,626 


Native 
white 
No.          Per  cent. 

56.9 
5.7 
7.5 

12.6 


Foreign 
white 


17.3 


No. 

Per  cent. 

125,289 
8,219 
49,594 
41,356 

40.9 
2.7 
16.2 
13.5 

82,204 

26.7 

306,662 

100.0 

641,151    100.0 


A  glance  at  this  table  is  sufficient  to  demonstrate  the  very 
much  higher  economic  status  of  the  first  group.  Agriculture 
and  professions  claim  62.6$  of  all  native  white  persons  over 
sixty-five  gainfully  employed,  and  only  43.6$  of  the  foreign 
white  males  of  the  same  age-groups.  On  the  other  hand, 
mechanical  pursuits  and  domestic  service  employ  42.9$  of  all 
the  foreign  whites  and  only  24.8$  of  the  native  whites.  More 
detailed  illustrations  could  be  drawn  in  unlimited  numbers. 
The  foreign-born  whites  on  one  hand  and  the  negroes  on  the 


PENSION  MOVEMENT  IN  UNITED  STATES    409 

other,  who,  after  all,  constitute  a  very  large  majority  of  the 
wage-working  class,  get  very  little  of  the  war  pension,  the 
bulk  of  which  must  reach  the  middle-class  American. 

Nor  are  statistics  necessary  to  prove  this  obvious  state  of 
affairs.  The  economic  effects  of  the  war  pension  have  been  so 
carelessly  treated  in  the  pension  legislation  that  it  surprises 
no  one  to  find  a  war  veteran  drawing  a  substantial  salary  as 
a  public  employee  (after  having  obtained  the  appointment 
under  privileged  conditions),  and  at  the  same  time  his  war 
pension  for  disability;  and  perhaps  the  most  striking  and 
ludicrous  example  of  this  was  the  well-known  case  of  a  promi- 
nent veteran,  who  some  years  ago  received  within  one  month 
a  high  pension  specially  voted  by  Congress  because  of  total 
and  permanent  incapacity,  and  immediately  after  that  an  im- 
portant and  responsible  position  in  the  Federal  Civil  Service, 
which  carried  with  it  a  salary  of  $3,500  per  annum. 

Notwithstanding  all  these  incongruities,  however,  the  sys- 
tem of  war  pensions  represents  a  very  important  entering 
wedge  for  a  national  system  of  old-age  pensions.  No  matter 
how  lenient  and  extravagant  future  war-pension  legislation 
may  be,  it  is  hard  to  imagine  how  the  rapid  decline  in  the 
number  of  surviving  invalids  of  the  war  can  be  prevented.  As 
their  number  has  declined  from  758,511  to  538,000  in  fourteen 
years,  or  on  an  average  of  15,700  for  each  year,  and  as  within 
the  last  five  years  the  decline  was  from  679,937  to  538,000,  or 
28,400  for  each  year,  it  is  reasonable  to  expect  that  within 
this  decade  the  number  will  be  further  reduced  to  about 
200,000.  A  large  appropriation  will,  therefore,  automatically 
become  available,  which  will  permit  of  the  establishment  of  a 
national  old-age  pension  scheme  without  even  any  material 
fiscal  disturbance — something  which  no  important  European 
country  has  been  able  to  accomplish. 

Already  the  first  beginnings  in  the  movement  for  a  national 
old-age  pension  system  have  been  made.  England's  precedent 
on  the  one  hand,  and  the  familiarity  with  the  war  pension  on 
the  other,  have  given  the  straight  pension  idea  a  material 
advantage  over  plans  for  compulsory  insurance.  A  few  states 
have  appointed  commissions  for  the  study  of  the  problem,  and 
though  the  most  important  of  them,  the  Massachusetts  Com- 
mission, has  not  only  filed  a  report  against  straight  govern- 
mental old-age  pensions  but  stated  bluntly  that  ' '  any  recom- 


410  SOCIAL  INSURANCE 

mendation  of  general  legislation  on  the  subject  of  old-age 
pensions  or  insurance  would  be  premature  at  the  present 
time,"  nevertheless,  even  this  report,  quite  comprehensive  on 
its  informational  side,  has  contributed  to  the  popular  knowl- 
edge of  the  subject.  It  is  doubtful  whether  the  majority  either 
of  the  wage-working  population  or  of  the  students  of  eco- 
nomic problems,  would  agree  with  the  conclusion  that  ' '  there 
is  no  alarming  amount  of  old-age  destitution.''  Moreover,  the 
advocates  of  social  insurance  might  find  a  good  deal  of  com- 
fort in  the  statement  of  the  commission  that  "  if  any  general 
system  of  old-age  pension  is  to  be  established  in  this  country, 
this  action  should  be  taken  by  the  National  Congress,"  and 
also  that  "  the  problems  of  sickness  and  accident  insurance 
should  be  dealt  with  before  enacting  .  .  .  legislation  concern- 
ing old-age  pensions  or  insurance."  The  old  attitude  of  in- 
difference to  measures  of  social  insurance  seems  to  have  gone 
for  good. 

The  positive  recommendations  of  the  Commission  were 
neither  novel  nor  extensive;  they  simply  followed  the  earlier 
measures  in  which  a  good  deal  of  faith  was  put  in  Europe 
twenty-five  or  fifty  years  ago,  but  since  then  have  been  recog- 
nized as  utterly  inadequate.  Whether  it  will  be  necessary  for 
the  United  States  to  accumulate  at  its  own  expense  this  painful 
and  slow  experience,  it  is  hard  to  say.  But  there  can  be  no 
doubt  that  the  measures  recommended  by  the  Massachusetts 
Commission — such  as  instruction  in  thrift,  voluntary  annuity 
insurance  in  private  insurance  companies,  organization  of  pen- 
sion schemes  by  large  private  employers  of  labor,  amendment 
of  the  laws  concerning  fraternal  organizations  so  as  to  permit 
them  to  pay  old-age  benefits,  will  prove  no  more  effective  for 
a  general  solution  of  the  problem  of  old  age  than  did  similar 
plans  and  measures  in  all  industrial  countries  of  Europe. 

In  Federal  legislation  also  a  few  preliminary  steps  have  been 
taken.  Already  several  bills  have  been  introduced  in  Con- 
gress dealing  with  the  general  problem  of  old  age.  In  Decem- 
ber, 1909,  Representative  Wilson  of  Pennsylvania  introduced 
a  rather  naively  drawn  bill  which  provided  for  a  national  old- 
age  pension  system  of  $120  per  annum  for  all  persons  over 
sixty-five  years  of  age  who  do  not  possess  property  valued  at 
over  $1,500,  or  an  income  of  more  than  $240,  under  a  subter- 
fuge of  organizing  an  "  Old- Age  Home  Guard  of  the  United 


PENSION  MOVEMENT  IN  UNITED  STATES    411 

States,  "  in  which  men  and  women  of  that  age  would  be  per- 
mitted to  enlist  in  order  to  receive  the  pension  as  * '  pay. ' '  The 
bill  failed  to  attract  much  publicity,  but  the  bill  introduced 
eighteen  months  later  (July,  1911)  by  the  first  socialist  Eepre- 
sentative,  Victor  L.  Berger,  fared  much  better.  This  bill  had 
the  advantage  of  the  combined  support  of  both  the  enthusiastic 
membership  of  the  socialist  party  and  many  trade  unions. 
Being  a  socialist  measure,  its  provisions  are  naturally  very 
liberal,  at  least  financially;  more  liberal,  in  fact,  than  those 
of  any  existing  governmental  old-age  pension  system.  It  pro- 
posed a  pension  of  $4  per  week  or  less,  on  a  sliding  scale,  to  all 
persons  of  sixty  years  of  age  or  over,  who  do  not  possess  an 
income  of  over  $10  a  week.  Several  provisions  in  the  bill 
(especially  those  requiring  sixteen  years  of  citizenship,  and 
denying  the  pension  to  any  one  ever  convicted  of  felony)  called 
forth  severe  criticism  from  many  radical  socialists,  and  the 
bill,  rather  hastily  drawn,  was  made  the  subject  of  very  acrid 
discussion  in  the  socialist  press  for  many  months.  But  this 
discussion  rather  helped  the  cause,  for  it  brought  the  subject 
of  pensions  home  to  hundreds  of  thousands  of  American 
families.  The  demand  for  an  old-age  pension  has  for  over 
twenty  years  constituted  a  permanent  plank  in  the  platform  of 
the  socialist  party,  but  for  the  first  time  it  has  now  become 
a  living  issue  as  is  proven  by  the  fact  that  it  has  been  included 
in  the  famous  "  confession  of  faith  "  and  in  the  national  and 
New  York  State  platforms  of  the  Progressive  party. 

Finally,  the  first  steps  have  already  been  taken  towards 
active  participation  of  governmental  authority  in  old-age  in- 
surance. Massachusetts,  since  1907,  and  Wisconsin,  by  an  act 
of  1911,  have  taken  this  significant  step.7  While  it  is  true  that 
the  Massachusetts  plan  is  carried  out  not  through  the  state 
directly,  but  through  savings  banks,  the  degree  of  control  and 
regulation  exercised  makes  it  no  less  a  state  insurance  system 
than  many  state  insurance  systems  in  Europe. 

The  principles  of  the  Massachusetts  plan,  for  which  the 
well-known  "  people's  attorney,"  Louis  D.  Brandeis,  has  so 
ardently  worked,  are  very  similar  to  those  upon  which  volun- 
tary insurance  against  old  age  in  Europe  is  based. 

7  See  Massachusetts  Commission  on  Old- Age  Pensions,  Report,  pp. 
190-204. — L.  W.  Squier:  Old  Age  Dependency  in  the  United  States, 
pp.  286-90. — Quarterly  Publications  of  the  American  Statistical  Asso- 
ciation, No.  85,  1909. 


412  SOCIAL  INSURANCE 

As  the  Massachusetts  system  is  designed  especially  for  the 
purpose  of  life  insurance,  a  more  detailed  description  of  it 
will  be  given  in  the  following  chapter  dealing  with  this  sub- 
ject. Though  old-age  insurance  is  permitted  to  this  system,  it 
is  accomplishing  so  very  little  for  the  solution  of  old-age 
dependency  that  only  on  grounds  of  scientific  accuracy  may 
the  inclusion  of  the  Massachusetts  system  in  this  chapter  be 
defended.  During  the  first  sixteen  months  only  59  policies  out 
of  1,499  issued  by  the  Whitman  Savings  Bank  called  for  an- 
nuities— 1  out  of  25. 

Very  little  may  as  yet  be  said  about  the  Wisconsin  plan, 
which  has  been  in  operation  a  few  months  only.  It  differs 
from  the  Massachusetts  system  in  being  a  straight  state  insur- 
ance system.  Both  annuities  and  life  insurance  are  permitted, 
and  as  the  law  provides  for  loading  of  the  premiums  for  ex- 
penses, and  even  for  the  building  up  of  a  surplus,  it  cannot  be 
said  that  the  state  furnishes  even  an  indirect  subsidy. 

But  while  the  actuarial  field  of  operation  for  both  systems 
may  prove  a  very  narrow  one,  their  importance  need  not  be 
underestimated.  It  is  not  only  that  a  few  more  provident 
individuals  will  have  sagacity  enough  to  take  advantage  of 
cheaper  insurance.  It  is  not  only  that,  as  is  claimed  by  Mr. 
Brandeis  and  others,  the  fear  of  competition  of  these  state 
insurance  schemes  has  already  forced  the  industrial  and  ordi- 
nary private  insurance  companies  to  reduce  their  premiums. 
Their  main  significance  is  in  establishing  the  important 
principle  that  the  old-age  insurance  problem  is  one  of  deep 
concern  to  government  and  society.  And  the  European  experi- 
ence showing  experiments  in  voluntary  state  insurance  as  a 
preliminary  step  towards  true  social  insurance,  which  is  com- 
pulsory insurance,  is  a  portent  of  the  inevitable  development 
in  the  United  States  as  well. 


CHAPTER  XXV 

LIFE  INSURANCE  FOR  WORKMEN— PENSIONS  FOR 
WIDOWS  AND  ORPHANS 

A  CAREFUL  examination  of  a  very  large  number  of  general 
books  on  social  insurance  discloses  the  rather  striking  fact 
that  the  subject  of  ordinary  life  insurance — the  most  familiar 
type  of  personal  insurance  in  this  country — is  singularly  dis- 
regarded. In  scarcely  any  one  of  them  is  a  systematic  treat- 
ment of  this  form  of  insurance  to  be  found.  In  most  it  is  not 
even  referred  to.  Evidently  the  explanation  cannot  be  found 
in  the  suggestion  that  the  wage-workers  do  not  need  it.  For 
the  danger  of  premature  death,  with  dependent  relatives  sur- 
viving, is  and  must  be  a  very  serious  one  to  the  wage-working 
class. 

The  omission  of  this  topic  is  rather  due  to  the  absence  until 
very  recently  of  any  large  state  or  social  efforts  to  deal  with 
the  problem,  so  that  in  a  systematic  study  of  social  insurance, 
the  problems  of  life  insurance  would  be  presented  mainly  as  so 
many  open  questions  still  awaiting  an  answer.  Within  the  last 
few  years,  the  bold  new  German  plan  of  pensions  for  widows 
and  orphans  has  paved  the  way  for  a  careful  consideration 
of  this  problem,  and  it  has  called  attention  to  the  fact  that 
fragmentary  provisions  for  the  emergency  of  death  have  al- 
ready been  made  in  almost  all  European  countries,  and  in  a 
great  variety  of  ways. 

It  scarcely  seems  necessary  to  emphasize  the  fact  that  pre- 
mature death  of  the  bread-winner  is  a  serious  economic  risk 
which  exists  in  each  and  every  wage-working  family.  In 
discussing  the  economic  results  of  industrial  accidents,  the 
effects  of  fatalities  upon  the  standard  of  the  surviving  family 
were  sufficiently  indicated.  Obviously,  from  an  economic  point 
of  view,  it  matters  little  whether  an  industrial  accident  or  an 
illness  was  the  cause  of  death.  With  the  higher  sick-rate 
among  the  wage-workers,  with  the  prevalence  of  various  indus- 
trial diseases,  the  death-rate  among  wage-earners  is  higher  and 

413 


414  SOCIAL  INSURANCE 

the  average  duration  of  life  shorter  than  among  the  other 
groups  of  population.  Normal  death  after  a  life  of  useful 
toil  should  come  at  an  age  when  the  immediate  descendants  at 
least  are  beyond  the  age  of  dependency.  But  perhaps  few 
appreciate  how  comparatively  rare  are  deaths  at  normal  age. 
Taking  all  cases  of  death  under  sixty-five  as  premature,  both 
physiologically  and  economically,  77$  of  all  deaths  in  1908 
in  the  United  States  were  premature.1  Even  if  the  alarming 
infant  mortality  is  disregarded  and  only  deaths  of  occupied 
males  are  considered,  73$  occurred  below  the  age  of  sixty-five ; 
55$  occurred  below  the  age  of  fifty-five ;  39$  below  the  age  of 
forty-five.  Thus  the  majority  of  deaths  did,  except  in  cases 
of  wholly  unattached  bachelors,  lead  to  some  measure  of  eco- 
nomic distress.  It  goes  without  saying  that  these  premature 
deaths  are  more  frequent  among  wage-workers.  Thus,  among 
professional  classes,  deaths  under  the  age  of  forty-five  con- 
stituted nearly  50$  of  all  deaths;  in  personal  service,  60$; 
in  manufactures  and  mechanical  industries,  55$;  among  the 
laboring  and  servant  class,  68$. 

The  economic  results  of  most  premature  deaths  of  bread- 
winners are  the  problems  confronting  widowhood  and  orphan- 
age :  the  charitable  relief  of  widows  burdened  with  large  fami- 
lies, the  employment  of  widows  in  poorly  paid  and  unsanitary 
trades,  the  growth  of  orphan  asylums,  and  to  a  large  measure, 
child  labor.  Though  the  situations  are  familiar,  almost  obvi- 
ous, a  few  statistical  data  will  be  of  some  interest  in  helping  to 
measure  the  extent  of  the  problems.  In  1910,  if  only  20,381,819 
women  constituting  the  female  population  over  twenty  be 
considered,  there  were  2,712,075  widows,  or  13$,  for  the  vast 
majority  of  whom  widowhood  necessarily  was  an  economic 
problem.  No  statistics  of  the  number  of  orphans  in  the  United 
States  exist,  as  far  as  we  are  aware,  but  it  is  safe  to  assume 
that  in  the  case  of  widows  who  are  under  fifty-five,  the  majority 
have  dependent  children,  and  the  number  of  such  widows 
within  the  age-groups  20-55  was  1,177,043,  or  7$  of  all  the 
women  at  that  age. 

v  That  the  problem  of  woman 's  work  is  to  a  very  considerable 

extent  the  problem  of  widowhood,  the  following  figures  will 

show :  of  5,329,292  women  employed  in  gainful  occupations  in 

1900,  857,922  were  widows,  or  fully  one-sixth,  though  widows 

1  U.  S.  Census  Bureau,  Mortality  Statistics,  1908,  p.  19. 


LIFE  INSURANCE  FOR  WORKMEN  415 

constituted  less  than  one-tenth  of  all  female  persons  over  ten. 
Moreover  wage-work  for  a  widow  is  a  very  much  more  serious 
problem  than  for  the  unmarried  women.  It  is  wage-work 
not  temporary  in  character  as  it  mostly  is  for  a  young  unmar- 
ried woman,  looking  forward  to  marriage  after  a  few  years 
of  employment.  It  is  wage-work  of  the  middle-aged  woman, 
usually  broken  down  in  health  from  childbirth,  poverty,  and 
specific  female  complaints.  It  is,  finally,  wage-work  in  the 
poorest  paid  and  most  unsanitary  employments.  Thus,  common 
day-laborers  constitute  less  than  1.7$  of  the  unmarried  women, 
and  3.4$  of  the  widows;  laundry  work,  less  than  3$  of  the 
single  women  and  13$  of  the  widows.  Poor  dressmaking  and 
seamstress  work  is  another  field  of  endeavor  open  to  aged 
widows. 

A  good  deal  has  been  written  about  the  cruel  parents  who 
feed  on  the  sweat  and  blood  of  their  children.  The  peculiar 
economic  conditions  of  "  she-towns  "  where  women  and  chil- 
dren find  ready  employment  while  able-bodied  men  must  live 
in  idleness,  have  been  studied  and  described.  But  one  of  the 
most  obvious  and  least  emphasized  causes  of  child  labor  is  the 
economic  distress  of  orphanage.  A  limited  investigation  into 
this  question  made  by  the  U.  S.  Census  in  1907  from  the 
data  of  the  Census  of  1900,  and  which  covered  only  23,567 
children,  showed  that  over  20$  were  orphans,  either  through 
death  or  desertion  of  their  father.2  It  is  particularly  in  the 
street  trades  (messengers,  errand-boys,  newsboys),  which  are 
responsible  for  some  of  the  worst  features  of  child  labor,  that 
the  largest  proportion  of  fatherless  children  is  found. 

The  need  of  insurance  protection  against  the  economic  con- 
sequences of  death  for  the  wage-workers  is  thus  evident  enough. 
It  does  not  follow  from  this  that  the  methods  of  life  insurance 
which  have  achieved  such  popularity  among  the  middle  classes 
are  at  all  adapted  to  the  wage-workers. 

The  economic  basis  of  life  insurance,  as  it  is  usually  prac- 
tised in  this  and  other  countries,  is  that  of  accumulation  of  a 
fixed  sum.  The  underlying  thought,  perhaps  unconsciously,  is 
a  money  valuation  upon  human  life.  As  in  case  of  fire  insur- 
ance, the  sum  insured  is  supposedly  big  enough  to  compensate 
for  the  loss,  so  in  life  insurance,  the  middle-class  man  is  en- 

2  Bureau  of  the  Census,  Bulletin  69,  Child  Labor  in  the  United 
States,  1907,  p.  19. 


416  SOCIAL  INSURANCE 

couraged  to  carry  a  lump  amount  commensurate  with  his 
value.  The  earning  capacity  of  the  bread-winner  is  capital- 
ized, for  modern  society  has  been  taught  to  think  in  terms  of 
capital  and  interest.  The  persistent  efforts  of  private  life 
insurance  companies  to  extend  the  field  of  their  operations 
have  undoubtedly  been  socially  useful  in  that  they  have  done 
a  good  deal  to  popularize  the  concept  of  insurance.  But  one  of 
the  results  of  their  efforts  has  been  the  confusion  of  insurance 
and  accumulation.  The  popularity  of  short-term  endowment 
policies  has  been  one  of  the  results  of  this  confusion.  Expen- 
sive endowment  policies  are  carried  by  thousands  who  can 
ill  afford  them,  at  a  very  great  cost  and  sacrifice,  when  all  that 
they  need, — protection  against  the  danger  of  death, — could 
be  obtained  at  a  cost  many  times  smaller, — simply  because  they 
have  been  taught  to  combine  insurance  with  forced  saving. 

When  saving  is  thus  combined  with  insurance,  its  combined 
cost  becomes  too  heavy  a  burden  for  many. 

The  co-operative  efforts  of  life  insurance  by  the  lower  eco- 
nomic groups  were  usually  directed  towards  simple  insurance, 
because  of  its  cheapness. 

The  combination  of  life  insurance  with  enforced  savings  is 
out  of  place  as  far  as  a  class  is  concerned  which  can  hardly 
afford  to  make  any  savings.  Life  insurance  for  wage-workers 
must  approach  the  problem  from  an  entirely  different  angle. 
It  must  take  into  consideration  the  definite  economic  problems 
arising  out  of  death,  and  only  those.  Workmen's  life  insur- 
ance must  be  planned  with  a  view  of  protecting  certain  definite 
interests  of  dependents.  For  a  wage-worker  to  withhold  a  por- 
tion of  his  earnings  from  consumption  for  the  purpose  of  life 
insurance  in  absence  of  definite  beneficiaries  would  be  harm- 
ful social  waste. 

What,  then,  are  the  economic  losses  ensuing  from  the  death 
of  a  wage- worker  ?  They  are  of  two  kinds :  the  expenses  inci- 
dental to  death, — the  cost  of  the  last  illness  and  the  funeral, — 
and  secondly,  the  loss  of  income  to  the  widow  and  children, 
and,  less  directly,  to  other  dependent  relatives — the  superannu- 
ated parents,  brothers,  and  sisters.  In  other  words,  the  problem 
is  very  much  like  that  arising  from  fatal  accidents,  for  which 
the  necessary  provisions  were  already  discussed. 

The  existing  provisions  for  life  insurance  for  wage-workers 
may  be  classified,  following  the  general  lines  of  division  laid 


LIFE  INSURANCE  FOR  WORKMEN  417 

down  for  other  branches  of  social  insurance,  into  four  large 
groups : 

Commercial  Insurance. 

Voluntary  Co-operative  Insurance. 

Voluntary  State  Insurance. 

Compulsory  State  Insurance. 

Even  among  the  middle  classes  of  Europe  life  insurance 
with  private  stock  companies  is  far  less  popular  than  it  is  in 
the  United  States.  It  may  be  safely  said  that ' '  ordinary  ' '  life 
insurance  as  the  average  American  middle-class  citizen  knows 
it,  which  begins  at  a  rather  advanced  age  and  demands  heavy 
annual  or  semi-annual  premiums,  has  not  found  a  very  good 
field  even  among  American  workmen,  and  is  practically  un- 
known among  the  workmen  of  Europe,  and,  therefore,  scarcely 
requires  any  further  discussion. 

But  in  this  country  as  well  as  in  several  European  coun- 
tries, notably  Great  Britain  and  Germany,  a  special  form  of 
life  insurance  for  workmen  has  been  developed  by  private  stock 
companies  under  the  name  of  ' '  industrial  "  or  ' '  prudential  ' 3 
insurance.  Its  tremendous  growth  within  a  comparatively 
short  period  of  time  makes  the  relation  between  industrial  and 
social  insurance,  especially  their  probable  relation  in  the  fu- 
ture, a  problem  of  great  theoretical  interest  and  practical 
importance. 

In  discussing  the  general  distinctions  between  commercial 
and  social  insurance,  it  was  pointed  out  that  the  high  cost  of 
private,  voluntary,  commercial  insurance  was  the  one  great  ob- 
stacle in  the  way  of  its  meeting  the  economic  needs  of  the  wage- 
working  masses,  that  not  only  was  the  true  cost  of  insurance 
high,  but  the  high  administrative  expenses,  agents'  commis- 
sions, and  the  profit  of  the  insurance  company  made  the  final 
cost  still  higher,  and,  therefore,  still  more  prohibitive  to  the 
masses  of  wage-workers.  In  the  case  of  industrial  insurance 
all  these  factors  are  very  much  more  marked  than  in  ordi- 
nary life  insurance,  intended  for  the  middle  classes.  For 
the  distinctions  between  ordinary  and  so-called  industrial  life 
insurance  are  these: 

1.  A  higher  assumed  mortality  for  industrial  insurance  in 
view  of  a  higher  death-rate  and  a  shorter  probability  of  life 
among  the  industrial  population. 


418 


SOCIAL  INSURANCE 


2.  A  much  smaller  average  amount  of  insurance,  and  for 
this  reason  a  higher  administrative  cost,  and 

3.  Finally,  a  weekly  (instead  of  an  annual  or  semi-annual) 
collection  of  premiums  through  personal  visits  by  agents ;  and 
all  these  three  factors  go  far  to  increase  the  cost  of  industrial 
insurance  as  compared  to  ordinary  insurance.    This  can  easily 
be  shown  by  a  comparison  of  rates.    Nevertheless,  the  number 
of  people  insured  under  this  system  in  the  United  States,  in 
England,  and  in  Germany  is  enormous. 

In  this  country,  though  industrial  insurance  was  first  begun 
only  about  thirty-five  years  ago,  its  growth  was  phenomenal, 
so  that  by  the  end  of  1911,  there  were  nearly  25,000,000 
policies  in  force,  as  the  following  table  shows : 

INDUSTRIAL  INSURANCE  IN  THE  UNITED  STATES,  1876-1911 


Year 

Insurance 
written 
during  year 

Number  of 
policies  in 
force 

Amount  of 
insurance 
in  force 

Premiums 
received 

Losses 
paid 

No. 
of 
Cos. 

1876      $ 
1881 
1886 
1891 
1896 
1901 
1906 
1911 

722,168 
37,089,522 
132,674,189 
218,130,800 
360,852.458 
598,593,825 
631,417,769 
785,902,210 

4,816 
359,942 
1,764,158 
4,302,427 
7,375,688 
12.334,459 
17,829,046 
24,708,499 

$          443,072 
22,641.798 
196,694,876 
481,060,716 
886,484,869 
1,640,398,546 
2,451,177,221 
3,423,790,536 

$           14,495 
1,608,891 
1,368,142 
20,654.980 
40.058,701 
74,660,060 
130,215,764 
183,504,755 

$         1,958 
541,925 
2,466,725 
7,725,328 
13,4^0.336 
22,003,402 
34,864,191 
50,231,397 

1 
3 
3 
9 
11 
15 
19 
32 

Total  forft1o  R9n  OKI  147                                                                     «1  SQ2  221  K1fi       «K3fi  fiR7  WU 

It  is  often  claimed  in  defense  of  these  industrial  insurance 
companies  that  with  a  proper  organization,  private  voluntary 
insurance  may  accomplish  results  equally  large  as  compulsory 
systems  of  social  insurance  in  Europe.  The  proportion  of  the 
population  carrying  industrial  policies  in  the  United  States  is 
nearly  27$,  or  very  much  greater  than  the  proportion  carrying 
sickness  insurance  in  Germany. 

But  mere  numbers  of  insured  cannot  be  depended  upon  as 
a  sound  criterion  of  the  social  value  of  any  insurance  system. 
This  must  be  judged  by  the  social  returns  on  one  hand,  and 
its  cost  on  the  other. 

What  are  the  benefits  which  the  American  working  class 
(and  the  same  situation  obtains  in  other  countries  where  in- 
dustrial insurance  is  popular)  derives  from  this  enormous 
organization  ?  It  is  spoken  of  usually  as  a  form  of  life  insur- 
ance. This  is  evidently  a  misunderstanding,  for  the  entire 
system  fails  absolutely  to  meet  the  more  serious  problem  of 


LIFE  INSURANCE  FOR  WORKMEN  419 

premature  death, — the  problem  of  supporting  the  surviving 
dependents.  The  average  amount  of  the  insurance  carried 
per  policy  is  ridiculously  inadequate  to  meet  any  of  these  seri- 
ous economic  problems.  In  1881  it  was  $91  per  policy;  in 
1891,  $112 ;  in  1901,  $133 ;  and  in  1911,  $138.  Even  though 
there  has  been  an  increase  in  the  average  amount  from  $91 
to  $138  in  thirty  years,  this  has  hardly  compensated  for  the 
decline  in  the  purchasing  value  of  money  during  the  same 
period.  Even  as  a  temporary  relief  to  tide  the  family  over 
during  the  critical  period  after  the  loss  of  the  bread-winner, 
the  amount  of  $100  to  $150  is  hardly  sufficient.  As  a  matter  of 
fact,  it  has  been  freely  admitted  for  years  that  the  problem 
which  industrial  insurance  aims  to  solve,  is  not  of  * '  life  insur- 
ance "  but  of  "  death  insurance/'  not  the  problem  of  relief 
for  the  survivors,  but  of  a  decent  burial  for  the  dead.  If  the 
purpose  of  social  insurance  be  defined  as  "  improvement  of 
the  standard  of  living,"  industrial  insurance  aims  to  improve 
the  "  standard  of  dying  "  and  of  burial. 

No  greater  authority  on  the  purposes  of  industrial  insurance 
can  be  found  than  the  late  Senator  John  F.  Dryden,  organizer 
and  President  of  the  Prudential  Insurance  Company.  The 
purposes  of  industrial  insurance  are  clearly  stated  by  Senator 
Dryden  in  the  following  words : 3 

"  To  provide  .  .  .  for  the  most  simple  needs  of  the  mass  of  the 
population  at  the  hour  of  death.  .  .  .  The  problem  reduces  itself 
to  the  necessity  that  the  burial  of  the  father  or  the  child  must  be 
paid  for.  .  .  .  The  poor  have  their  standards  of  life  .  .  .  and 
however  humble  their  station  they  prefer  the  burial  of  their  dead 
at  their  own  expense  in  a  manner  which  to  them  represents  the 
common  decencies  of  life." 

In  view  of  these  unmistakable  statements,  one  rather  won- 
ders at  the  extravagant  claims  made  for  industrial  insurance  by 
the  same  writer  that  "  the  value  of  industrial  insurance  as 
making  for  a  higher  standard  of  family  life  cannot  be  over- 
estimated." It  is  too  well  known  that  the  greatest  portion  of 
money  paid  out  in  industrial  insurance  claims,  readily  finds 
its  way  into  the  pockets  of  undertakers  as  a  result  of  a  de- 
plorable extravagance  in  funeral  arrangements,  encouraged 
by  a  life-long  insurance  for  the  purpose  of  "a  decent 
funeral." 

*  Tale  Readings  in  Insurance :  Life  Insurance,  by  Professor  Zartman. 


420  SOCIAL  INSURANCE 

This  being  the  main  result  of  industrial  insurance,  what  is 
its  cost?  The  table  shows  that  the  total  amount  contributed 
by  the  insured  in  premiums  is  enormous.  The  bare  statement 
that  for  thirty-six  years  $1,893,000,000  was  spent  does  not  tell 
the  full  story.  More  significant  is  the  fact  that  the  annual 
amount  has  increased  from  less  than  $2,000,000  in  1881  to 
$183,000,000  in  1911,  almost  equaling  at  present  the  total 
cost  of  the  German  social  insurance  system.  Thus,  the  Ameri- 

X  can  working  class  pays  for  funeral  insurance  as  much  as  is 
contributed  in  Germany  by  all  three  parties  concerned,  the 
wage-workers,  the  employers,  and  the  state,  for  (1)  accident 
insurance,  (2)  sickness  insurance,  (3)  funeral  insurance,  (4) 
maternity  insurance,  (5)  invalidity  insurance,  and  (6)  old-age 
insurance  combined. 

^  The  expenses  of  administration  exceed  40$  of  the  income, 

so  that  over  $750,000,000  was  spent  unproductively  by  the 
industrial  insurance  companies.  Whether  the  heavy  adminis- 
trative expense  is  justifiable,  taking  the  business  as  it  is  organ- 
ized at  present,  is  an  open  question,  which  need  not  be  an- 
swered. It  may  be  readily  admitted  that  without  the  heavy 
cost  of  solicitation  and  collections,  the  results  accomplished — 
the  almost  universal  insurance  of  the  wage-workers  and  simi- 
lar economic  groups — could  not  be.  But  this  very  admission  is 
the  strongest  argument  possible  in  favor  of  compulsory  insur- 
ance, for  it  demonstrates  the  frightful  difficulties  in  the  way 
of  making  universal  insurance  possible  under  a  voluntary 
system,  and  the  insignificant  results  obtainable  notwithstanding 
the  high  cost. 

In  discussing  voluntary  old-age  insurance  even  in  state 
institutions,  statistics  were  quoted  (in  connection  with  the 
Italian  National  Old- Age  Insurance  Fund)  to  show  how  fre- 
quently a  good  intention  to  keep  up  the  insurance  fails  in  the 
course  of  time.  It  is  the  purpose  of  the  costly  system  of 
weekly  collection  by  personal  visits  of  agents  to  counteract  this 
tendency.  Nevertheless,  the  results  are  equally  unsatisfactory. 
Under  the  European  systems  of  voluntary  old-age  insurance — 
the  failure  to  keep  up  contributions  regularly  does  not  lead 
to  a  forfeit  of  the  accumulated  rights.  Under  the  "  indus- 
trial "  system,  the  danger  of  a  lapse  with  a  consequent  for- 
feiture of  the  insurance  is  an  additional  stimulus  to  regularity. 
It  is  claimed  to  be  necessary  in  order  to  preserve  the  continuity 


LIFE  INSURANCE  FOR  WORKMEN  421 

of  the  payment  of  premium,  but  even  this  costly  system  does 
not  produce  the  desired  effect.  The  number  of  lapses  is  enor- 
mous. In  1901  the  three  large  industrial  insurance  companies 
which  do  over  95$  of  the  whole  industrial  insurance  business 
in  this  country,  had  12,522,000  policies  in  force.  By  the 
end  of  1911  the  number  increased  to  22,760,000,  an  increase 
of  some  10,338,000  policies.  But  during  the  same  ten  years 
38,593,000  policies  were  written.  Even  assuming  a  uniform 
mortality  of  25  per  1,000,  which  is,  of  course,  very  much  too 
high  and  an  average  of  16,000,000  policies  in  force  during 
the  ten-year  period,  or  4,000,000  deaths,  it  will  leave  over  24,- 
000,000  policies  unaccounted  for — most  of  them  discontinued 
through  irregularity  of  payment  of  the  weekly  premiums. 
Thus,  in  63$  of  all  cases  the  agent  system  proves  ineffective, 
which  is  a  worse  showing  than  the  voluntary  system  makes  in 
some  European  countries. 

Thus,  the  experience  of  industrial  insurance  proves  not  only 
the  paucity  of  the  social  results  of  the  commercial  principle 
when  applied  to  the  insurance  of  the  masses,  but  by  its  very 
imposing  figures  also  the  failure  of  any  voluntary  system — no 
matter  what  its  organization  and  methods — to  accomplish  the 
results  which  compulsory  insurance  achieves. 

The  results  accomplished  through  various  forms  of  mutual 
organizations  in  the  field  of  life  insurance  are  less  startling  in 
numbers  but  very  much  more  substantial.  Both  trade  unions 
and  mutual  benefit  societies  under  the  various  names  usually 
include  funeral  benefits  in  connection  with  sick-insurance,  and 
often  in  countries  without  a  strictly  regulated  sick-insurance 
system,  more  substantial  death-benefits,  either  in  the  form  of  a 
lump  sum,  thus  performing  the  usual  functions  of  life  insur- 
ance, or  even  grant  pensions  to  widows  and  orphans. 

The  extent  of  these  operations  naturally  varies  with  the 
development  of  the  mutual  principle  in  general  and  with  the 
economic  status  of  the  wage-working  class,  which  limits  the 
possible  expenditure  of  the  normal  wage-worker's  budget  in 
that  direction.  Thus,  in  Italy,  30$  of  the  mutual  aid  societies 
grant  single  benefits  to  widows  and  orphans ;  only  4.5$  under- 
take to  grant  widows '  and  orphans '  pensions,  while  as  many  as 
45.4$  granted  funeral  expenses.  Though  in  Great  Britain  the 
main  activity  of  the  friendly  societies  is  in  the  line  of  sick- 
insurance,  nevertheless,  over  $4,000,000,  or  15$,  of  the  total 


422  SOCIAL  INSURANCE 

benefits  was  granted  in  one  year  on  account  of  death.  Out  of 
an  expenditure  of  $10,000,000  by  one  hundred  large  British 
unions,  some  $500,000,  or  5$,  was  for  the  purpose  of  funeral 
benefits.  On  the  other  hand,  when  state  controlled  sick-insur- 
ance systems  exist  (whether  compulsory  or  voluntary)  sick- 
benefit  societies  are  usually  prohibited  from  undertaking  any 
life  insurance  features  beyond  granting  a  modest  funeral  bene- 
fit, because  of  the  great  financial  difficulties  in  the  way  of  a 
satisfactory  compliance  with  promises  recklessly  made.  In 
Great  Britain,  where  mutual  life  insurance  is  perhaps  more 
highly  developed  than  in  any  other  European  country,  a  limit 
of  £200  (somewhat  below  $1,000)  was  placed  by  legislation. 

Perhaps  in  no  country  has  mutual  life  insurance  reached 
such  development  as  in  the  United  States.  It  is  extremely 
interesting  to  find  that  in  distinction  from  the  British  and 
German  unions,  even  the  trade  unions'  benefit  activity  puts 
death-benefits  upon  the  first  plane.  Thus,  the  official  investi- 
gation of  the  Bureau  of  Labor  showed  that  out  of  $7,829,021 
expended  for  various  benefits,  $5,164,385,  or  fully  two-thirds, 
was  paid  in  death-benefits.  So  prominent  was  this  feature  that 
all  the  national  unions  paying  any  benefits  at  all  included  this 
life  insurance.  Less  than  10,000  death-benefits  were  paid  dur- 
ing one  year,  thus  making  the  average  death-benefit  over  $500. 
Of  course,  the  average  must  not  be  taken  too  literally.  Marked 
variations  exist.  In  the  vast  majority  of  cases  the  amount  is 
under  $200  or  a  funeral  benefit  rather  than  life  insurance, 
but  in  a  few  instances,  especially  in  the  case  of  railway  em- 
ployees' unions,  the  amount  is  much  more  substantial,  from 
$1,000  to  $3,000.  In  these  instances  the  death-benefit  assumes 
the  dignity  of  life  insurance,  often  with  an  amount  depending 
upon  a  voluntary  premium. 

Even  the  local  labor  organizations,  very  much  weaker  finan- 
cially, still  emphasize  death-benefits,  though  to  a  less  marked 
degree.  Practically  all  the  34  railroad  benefit  funds  pay  death- 
benefits,  and  in  one  year  over  $1,600,000  was  paid  for  3,138 
deaths,  or  a  little  over  $500  per  death.  Of  these,  17  paid  from 
$50  to  $400,  while  the  remaining  17  paid  from  $1,000  to 
$3,000  and  in  several  additional  optional  benefits  for  greater 
dues  were  granted.  Here,  too,  therefore,  are  found  all  transi- 
tional forms  from  merely  funeral  benefits  to  substantial  life 
insurance.  Of  the  461  smaller  establishment  funds  described 


LIFE  INSURANCE  FOR  WORKMEN  423 

by  the  Government  report,  419,  or  over  90$,  paid  death-benefits. 
Most  of  them  paid  a  definite  lump  sum,  while  in  a  few  a  per 
capita  assessment  system  exists,  under  which  the  amount  of  the 
death-benefit  depends  upon  the  membership  at  the  time.  Fre- 
quently, though,  in  a  minority  of  the  funds,  different  amounts 
are  provided  for  different  classes  of  membership,  but  in  these 
funds  the  amount  is  usually  small. 

These  facts  throw  considerable  light  upon  the  problem  of 
life  insurance  for  workmen  in  the  United  States.  On  one 
hand,  the  conclusions  to  be  drawn  are  rather  hopeful.  They 
show  that  at  least  as  far  as  that  part  of  the  working  popula- 
tion is  concerned  which  has  become  accustomed  to  co-operative 
effort,  they  both  see  the  necessity  for  some  life  insurance  and 
succeed  in  establishing  it  through  their  own  efforts.  Members 
of  trade  unions  and  of  benefit  societies,  prefer,  and  very 
wisely,  to  organize  their  own  life  insurance  rather  than  bear 
the  heavy  burden  of  the  industrial  premium  loadings.  A 
rather  rough  computation  based  upon  the  official  report  here 
so  frequently  quoted,  seems  to  show  that  about  1,430,000  mem- 
bers of  unions,  300,000  members  of  railroad  benefit  funds,  and 
330,000  members  of  establishment  funds,  or  considerably  over 
2,000,000  workingmen,  have  preferred  this  method. 

On  the  other  hand,  it  is  extremely  easy  to  criticise  the  actu- 
arial basis  of  these  life  insurance  schemes.  As  the  official 
report  states,  1 1  no  actuarial  examination  of  the  benefit  funds 
of  the  various  unions  has  ever  been  made,"  and  the  same  is 
true  of  the  railroad  and  establishment  benefit  funds.  In  no 
other  line  of  voluntary  insurance  is  the  eventual  retribution 
for  neglect  of  the  actuarial  principles  so  certain  as  in  the 
case  of  life  insurance.  It  is  almost  certain  that  in  most  of 
the  funds  studied,  no  accumulations  have  been  made  to  con- 
stitute a  reserve  fund  for  the  obligations  which  the  increasing 
age  of  the  older  members  has  put  upon  them.  Nevertheless, 
there  is  very  little  danger  that  this  absence  of  actuarial 
soundness  will  injure  the  union  funds  or  establishment  funds 
very  severely.  They  are  placed  frankly  upon  an  assessment 
basis.  Both  in  the  unions  and  in  the  establishment  funds  the 
membership  is  practically  compulsory.  There  must,  therefore, 
be  a  constant  influx  of  new  blood,  and  there  is  very  little  rea- 
son to  fear  an  excessive  increase  of  the  mortality  rate. 

But  much  more  significant  is  the  possible  criticism  that  most 


424  SOCIAL  INSURANCE 

of  this  life  insurance  is  not  life  insurance  at  all,  but  merely 
funeral  insurance.  It  has  the  advantage  of  comparative  cheap- 
ness as  compared  with  "  industrial  insurance,"  but  this  ad- 
vantage does  not  solve  the  economic  problem  of  death.  At 
best,  even  this  cheap  funeral  insurance  meets  the  demands  of 
some  2,000,000  only.  Substantial  life  insurance  may  be  en- 
joyed by  perhaps  10$  of  that  number.  The  development  of 
these  co-operative  efforts  speaks  rather  of  the  recognition  of 
the  need  than  of  a  very  great  degree  of  success  in  meeting  it. 

There  remains  the  most  important  co-operative  institution 
for  life  insurance  in  the  United  States  —  the  so-called  fraternal 
orders. 

It  is  very  much  to  be  regretted  that  an  economic  institution 
of  such  tremendous  importance  has  never  been  made  the  sub- 
ject of  comprehensive  study.  It  is  impossible  to  do  more  here 
than  cast  a  glimpse  at  this  virgin  field.  Within  the  last  fifty 
years  the  development  of  fraternal  insurance  in  the  United 
States  has  been  enormous.  The  ceremonial  features  (or 
"  ritualistic  work  "  as  it  is  officially  styled)  of  these  orders 
sometimes  obscure  their  activity  in  mutual  aid,  which  consists, 
as  officially  stated  by  the  National  Fraternal  Congress  (one 
of  the  two  affiliated  bodies  of  these  orders),  in  the  following: 
(a)  Fraternal  assistance  to  living  members  in  sickness  and 
destitution;  (b)  the  payment  of  benefits  to  living  members 
for  total  physical  disability;  and  (c)  the  payment  of  benefits 
at  the  death  of  members  to  the  families,  heirs,  blood  relatives, 
or  dependents  of  such  deceased  members. 

Of  all  the  benefit  features  enumerated,  life  insurance  has 
become  the  most  prominent  one.  The  total  volume  of  life 
insurance  written  by  the  fraternal  orders  is  even  greater  than 
that  of  the  industrial  companies,  as  will  be  seen  from  the 
following  comparison: 


Number  of  policies  outstanding 

v  Ordinary  Life   Industrial  Life       Fraternal       Ord.  Life         Induet.  Frat. 

lear     Insurance  Cos.   Insurance  Cos.         Orders  Ins.  Cos.        Life  Cos.        Orders 

1901      3,458,464    12,334,459      4,518,955       7,573       1,640       5,656 
1911     6,621,386    24,708,499    10,122,169     12,803       3,424       9,840 

While  the  number  of  certificates  of  fraternal  orders  is  con- 
siderably smaller  than  that  of  industrial  policies,  the  average 


LIFE  INSUEANCE  FOR  WORKMEN  425 

insurance  carried  per  certificate  is  nearly  six  times  greater, 
and  the  total  amount  of  insurance  in  force  is  nearly  three 
times  greater.  In  fact,  it  is  almost  as  great  as  that  of  the 
ordinary  life  insurance  companies.  They  have  a  tremendous 
social  advantage  over  both  other  forms  of  life  insurance  in  a 
very  much  smaller  expense  ratio.  In  1911  their  entire  ex- 
penses of  management  including  commissions  constituted  an 
expense  ratio  of  less  than  14$,  while  the  ordinary  life  insurance 
companies  for  fifty  years  showed  an  average  expense  ratio  of 
20$,  and  the  industrial  life  insurance  companies  40$. 

Nevertheless,  the  fraternal  orders  have  been  severely  crit- 
icised, and  in  measure  justly,  because  of  their  failure  to  com- 
ply with  the  laws  of  actuarial  science.  They  largely  owe 
their  tremendous  popularity  to  the  cheapness  of  the  insurance 
they  sell,  which  in  most  cases  is  below  the  actual  cost.  Advan- 
tage is  taken  of  the  fact  that  the  low  average  age  produces 
for  the  time  being  a  very  low  mortality  rate,  and  the  rapid  in- 
crease in  membership  helps  to  keep  up  that  lower  mortality 
rate  for  a  longer  time  than  would  otherwise  be  possible.  But 
evidently  these  factors  cannot  be  operative  forever,  and  the 
day  of  reckoning  must  finally  arrive.  In  fact,  it  has  been 
proven  repeatedly  that  some  of  the  older  fraternal  orders  are 
already  in  a  precarious  position  because  of  a  rapidly  increasing 
mortality  rate.  When,  however,  on  the  basis  of  such  actuarial 
criticism  a  comparison  is  made  between  fraternal  and  com- 
mercial insurance,  and  entirely  in  favor  of  the  latter,  the 
whole  point  of  the  problem  is  missed.  The  social  value  of  co- 
operative life  insurance  is  too  great  to  be  dismissed  in  this 
peremptory  manner.  The  problem  must  be  met  in  an  entirely 
different  way. 

It  must  be  readily  admitted  that  the  speculative  element 
must  be  taken  out  of  a  business  of  such  national  importance. 
The  early  arrivals  of  a  fraternal  order  must  not  be  permitted 
to  exploit  their  later  membership.  Stringent  regulation  of 
the  rates  must,  therefore,  be  enforced.  But  such  regulation 
must  take  into  consideration  the  economic  condition  of  the 
classes  which  are  forced  to  obtain  cheap  life  insurance  or  none 
at  all.  The  condition  points  a  way  to  a  more  or  less  active 
assistance  of  the  state  to  the  fraternal  orders,  especially  as 
far  as  insurance  for  smaller  amounts  is  concerned.  That 
there  is  no  lack  of  willingness  to  purchase  life  insurance  the 


426  SOCIAL  INSURANCE 

figures  quoted  above  conclusively  show.  But  there  is  very 
little  doubt  that  in  life  insurance  as  in  other  forms  of  insur- 
ance, it  is  either  cheap  insurance  or  none  for  the  larger  propor- 
tion of  the  population. 

To  be  sure,  that  may  not  be  true  of  all  the  10,000,000  hold- 
ers of  fraternal  certificates.  The  membership  of  these  orders 
was  never  studied.  Partial  investigations  make  it  likely  that 
only  one-half  or  less  of  the  membership  belong  to  the  wage- 
earning  class.  If  .a  statistical  investigation  were  undertaken, 
it  would  probably  demonstrate  the  fact  that  these  could  claim 
a  lower  average  insurance  than  the  representatives  of  higher 
economic  groups. 

The  duty  of  the  state  to  provide  the  wage-earner  with  cheap 
life  insurance  has  already  been  recognized  by  several  states. 
In  other  words,  the  same  development  is  taking  place  in  life 
insurance  as  in  sickness  and  old-age  insurance,  though  as  yet 
the  results  are  very  much  less  important. 

Perhaps  the  oldest  example  of  this  is  found  in  Great  Britain, 
which  in  other  respects  lagged  behind  Continental  Europe  in 
matters  of  social  legislation,  until  very  recently  at  least.  By 
the  act  of  1864  the  postal  savings  banks,  established  three  years 
earlier,  were  authorized  to  write  both  life  insurance  and  old- 
age  insurance  in  small  amounts.  This  insurance  was  intended 
to  be  self-supporting,  but  the  elimination  of  most  elements  of 
loading,  such  as  profits,  cost  of  collection,  agents '  commissions, 
and  general  administrative  expenses,  made  it  possible  to 
achieve  very  cheap  insurance.  While  all  classes  of  the  popula- 
tion were  permitted  to  take  advantage  of  this  scheme,  yet 
narrow  limits  were  placed  upon  the  amount  of  insurance  that 
could  be  bought  in  this  way,  namely,  £100  (less  than  $500) 
for  life  insurance  and  £50  for  annuities  (less  than  $250).  In 
this  way  the  advantages  of  the  state  insurance  were  limited  to 
the  lowest  economic  group. 

The  perfect  failure  of  this  plan  is  well  known.  Though  in- 
surance sold  through  these  channels  was  very  much  cheaper 
than  that  sold  by  commercial  companies,  especially  by  the  in- 
dustrial companies,  a  ridiculously  small  number  of  aspirants 
for  this  insurance  appeared,  averaging  only  a  few  hundred 
a  year.  Weak  efforts  to  stimulate  the  activity  of  this  scheme 
were  made  without  much  success,  although  the  premiums  were 
repeatedly  reduced.  Eepresentatives  of  commercial  insurance 


LIFE  INSURANCE  FOR  WORKMEN  427 

companies,  not  only  in  Great  Britain,  but  in  other  countries 
as  well,  pointed  with  satisfaction  at  this  example  of  failure  of 
a  state  insurance  scheme,  insisting  that  it  proved  the  impos- 
sibility of  carrying  insurance  into  the  wage-working  masses 
without  the  expensive  system  of  agents  and  collectors.  How 
inefficiently  the  system  was  managed  appears  clear  from  the 
fact  that  throughout  its  existence,  annual  premium  payments 
have  been  exacted. 

It  is  very  likely  that  the  experience  of  this  system,  which 
was  much  better  known  among  the  foreign  students  of  insur- 
ance than  among  the  British  workmen  for  whom  it  was  in- 
tended, retarded  the  development  of  state  life  insurance. 
But  it  did  not  suppress  it.  Within  recent  years  a  strong 
movement  in  favor  not  only  of  state  life  insurance,  but  of  a 
state  monopoly  of  this  business  appeared  in  many  countries. 
Monopolies  have  been  recently  introduced  in  Italy  and  in 
Uruguay,  and  similar  measures  are  contemplated  in  several 
other  Latin- American  countries. 

It  is  undoubtedly  true  that  often  the  purpose  of  such 
monopolization  of  insurance  may  be  fiscal  rather  than  social, 
yet  the  step  cannot  help  having  its  social  effect,  for  if  effi- 
ciently administered,  national  life  insurance  must  effect  some 
savings  in  eliminating  profits,  eliminating  the  expensive  agency 
organization,  and  reducing  the  high  administrative  expenses 
of  a  competitive  business,  and,  moreover,  directly  or  indirectly 
shifting  a  part  of  the  administrative  cost  upon  the  national 
treasury. 

Nevertheless,  these  new  tendencies  towards  a  general  na- 
tionalization of  life  insurance  are  less  important  for  their  imme- 
diate social  effects  than  the  more  direct  efforts  of  govern- 
mental authority  to  cheapen  or  popularize  life  insurance  for 
the  working  masses.  Several  such  special  efforts  have  been 
recorded  within  recent  years,  notwithstanding  the  admitted 
failure  of  the  British  postal  scheme.  France,  Italy,  Russia,  and 
recently  Massachusetts  have  made  steps  in  that  direction, 
in  most  countries  in  connection  with  savings  institutions. 
Wisconsin  must  be  added  in  virtue  of  its  law  of  1911;  but 
very  little  can  be  said  of  it  as  yet,  except  that  it  is  a  system  of 
direct  state  life  insurance  open,  in  competition  to  private  in- 
surance companies,  to  all  citizens  of  the  state,  and  required  by 
the  law  to  be  self-supporting.  Of  all  the  steps  in  that  direction, 


428  SOCIAL  INSURANCE 

the  one  taken  by  the  State  of  Massachusetts  is  of  most  interest 
to  the  American  student. 

The  Massachusetts  System  of  Savings  Bank  Insurance,  es- 
tablished by  the  act  of  June  26,  1907,  is  admittedly  the  work 
of  that  famous  Boston  lawyer,  Louis  D.  Brandeis,  who,  by  his 
highly  efficient  work  in  many  cases  of  tremendous  public  inter- 
est, has  earned  for  himself  the  unique  title  of  "  the  people's 
attorney. ' ' 4 

Because  of  effective  publicity  work  the  provisions  of  the 
act  are  fairly  well  known.  The  purposes  of  the  act  are  to  fur- 
nish secure  life  insurance  or  old-age  annuities  to  the  wage- 
workers  of  Massachusetts  at  the  lowest  possible  cost,  as  a  sub- 
stitute for  the  expensive  so-called  * '  industrial  life  insurance. ' ' 
For  that  purpose  savings  banks  are  empowered  to  organize 
insurance  departments,  provided  they  are  willing  to  comply 
with  certain  conditions  concerning  guarantee  funds  for  the 
purpose  of  making  the  insurance  secure — a  small  guarantee 
fund  for  expenses,  and  a  special  insurance  guarantee  fund. 
The  social  intent  is  emphasized  in  the  limitations  placed  upon 
the  insurance  to  be  written — $500  for  life  insurance  and  $200 
for  annuities.  Employment  of  solicitors  and  collectors  is 
specifically  prohibited,  though  the  establishment  of  agencies 
under  approval  of  the  Bank  Commissioner  and  Insurance 
Commissioner  is  permitted.  The  state  retains  a  very  material 
control  over  this  form  of  life  insurance  by  the  creation  of  the 
office  of  State  Actuary,  to  whom  the  preparation  of  the  policy 
contracts  and  the  premium  rates  (uniform  for  all  banks)  is 
intrusted.  A  State  Medical  Director  acts  in  advisory  ca- 
pacity to  the  insurance  department  of  the  savings  banks.  A 
general  Insurance  Guaranty  Fund  has  been  created,  to  which 
4$  of  all  premiums  are  contributed,  for  the  purpose,  suffi- 

4  (1)  Louis  D.  Brandeis:  Massachusetts  Savings  Banks  and  Pension 
System,  in  Quarterly  Publications  of  the  American  Statistical  Associa- 
tion, No.  85,  March,  1909.  (2)  Pamphlet  of  same  title  issued  by 
Massachusetts  Savings  Insurance  League;  no  date.  (3)  Massachusetts' 
Substitute  for  Old  Age  Pensions,  issued  by  the  League;  no  date.  (4) 
Life  Insurance:  The  Abuses  and  the  Remedies,  by  L.  D.  Brandeis;  pub- 
lished by  Policyholders'  Protective  Committee;  no  date.  (5)  Four 
Wonderful  Tears,  by  L.  D.  Brandeis;  Boston  American,  August  5,  1912; 
reprinted  by  the  M.  S.  I.  League.  (6)  Savings  Bank  Life  Insurance,  a 
small  eight-page  monthly  now  in  its  third  year,  published  in  Boston. 
( 7 )  Reports  of  the  several  Massachusetts  Savings  Banks ;  and  ( 8 )  other 
leaflets  and  pamphlets  obtainable  at  161  Devonshire  Street,  Boston. 


LIFE  INSURANCE  FOR  WORKMEN  429 

ciently  indicated  by  its  name,  to  furnish  additional  security 
to  the  policy-holders. 

The  theoretical  question  may  be  raised  whether  the  Massa- 
chusetts system,  thus  organized,  may  be  designated  a  state 
insurance  system.  Like  all  definitions,  this  one  will  depend 
largely  upon  the  interpretation  of  words.  The  elements  of 
close  governmental  control,  and  especially  the  existence  of 
the  General  Guaranty  Fund,  make  it  at  least  as  much  a  state 
insurance  system  as  the  famous  sick-insurance  system  in  Ger- 
many or  the  accident  and  old-age  insurance  systems  of  Italy. 
But  whether  strictly  a  state  insurance  or  not,  there  can  be 
no  doubt  of  its  being  a  definite  policy  of  social  insurance,  — 
the  first  significant  step  towards  social  insurance  in  the  United 
States. 

There  is  no  doubt  that  the  promises  made  by  the  originators 
of  the  scheme  have  been  fulfilled.  The  rates  promulgated  are 
materially  lower  than  those  of  the  industrial  insurance  com- 
panies. 

RATES  FOR  LIFE  INSURANCE  UNDER  THE  MASSACHUSETTS  SAVINGS 
BANK  INSURANCE  SYSTEM 


ft*  |  g 

r      -1 

20  ............  $0.86  $10.32  $1.47  $17.64 

25  ............  1.00  12.00  1.81  21.72 

30  ............  1.15  13.80  2.24  26.88 

35  ............  1.34  16.08  2.85  29.40 

40  ............  1.58  18.96  3.74  44.88 

45  ............  1.91  22.92  5.15  61.80 

50  ............  2.38  28.56  7.60  81.20 

Mr.  Brandeis  is  authority  for  the  statement  that  the  gross 
rates  of  this  form  of  insurance  are  about  17$  lower  than  the 
"  now  prevailing  rates  of  private  industrial  companies.  " 
Mr.  Brandeis  also  claims  for  his  scheme  that  it  forced  repeated 
reduction  of  rates  by  these  private  companies  since  1906,  both 
because  of  its  direct  competition  and  the  discussion  resulting 
from  its  adoption.  In  addition,  the  conditions  of  the  Massa- 


430  SOCIAL  INSURANCE 

chusetts  system  are  more  favorable.  They  are  participat- 
ing, and  the  dividends  declared  within  the  first  four  years  have 
increased  from  8  1-3$  during  the  first  year,  to  16  2-3$  during 
the  fourth  year.  They  are  more  liberal  in  their  provision  con- 
cerning cash  surrender  value,  paid-up  insurance,  or  extended 
insurance  in  case  of  lapse.  All  in  all,  there  can  be  very  little 
doubt  that  it  is  a  wise  step  on  the  part  of  the  workingman, 
or  any  citizen  of  moderate  means,  to  prefer  the  Massachusetts 
savings  bank  scheme  to  ordinary  industrial  insurance. 

But  what  are  the  actual  results  of  the  system?  Does  it  of 
itself  offer  any  satisfactory  solution  to  the  problem  of  pre- 
mature death  ?  This  inquiry  need  not  be  made  in  any  spirit  of 
criticism  of  the  Massachusetts  plan — the  advantages  of  which 
must  be  frankly  admitted.  But  the  social  valuation  of  any 
scheme  of  betterment  cannot  be  based  upon  its  intensive 
virtue  alone.  The  extent  of  its  activity  must  be  the  final 
criterion,  as  it  was  admitted  to  be  in  all  European  discussions 
of  the  comparative  merits  of  voluntary  and  compulsory  in- 
surance. 

These  results  have  been  clearly  summarized  by  Mr.  Brandeis 
in  the  Boston  American  for  August  5,  1912,  under  the  rather 
extravagant  caption,  "  Four  Wonderful  Years — The  Success 
of  Massachusetts  Savings  Bank  Insurance,"  where  the  data 
are  brought  down  to  August  1,  1912. 

Of  the  192  savings  banks  existing  in  the  state,  only  4  have 
established  insurance  departments.  All  these  four  banks  are 
located  in  three  small  cities,  and  no  sweeping  movement  to 
extend  the  activity  of  the  savings  banks  into  the  field  of  insur- 
ance is  thus  noticeable.  As  the  further  development  depends 
upon  the  will  of  the  savings  banks,  there  is  here  the  first  seri- 
ous handicap,  such  as  a  similar  system  attached  to  the  national 
postal  savings  bank  (created  since  the  Massachusetts  system 
went  into  effect)  might  not  be  forced  to  face. 

Several  banks,  however,  while  hesitating  to  establish  in- 
dependent insurance  departments,  agreed  to  act  as  agents  of 
these  pioneers.  Many  large  employers  of  labor  have  also 
volunteered  to  assume  the  duties  of  agencies;  also  several 
social  institutions  and  some  labor  organizations. 

A  special  appeal  is  made  to  mutual  benefit  associations  to 
substitute  collective  insurance  of  their  membership  with  this 
financially  sound  system  for  their  unscientific  and  insecure 


LIFE  INSURANCE  FOR  WORKMEN  431 

method  of  granting  death-benefits.  In  a  circular  recently 
issued  for  purposes  of  stimulating  this,  three  associations  are 
mentioned  which  have  adopted  this  plan.  Their  combined 
membership  exceeds  1,000.  The  advantages  of  the  employers 
making  contributions  for  this  purpose  are  there  clearly  pointed 
out. 

Nevertheless,  the  total  results  are  as  yet  exceedingly 
meager,  and  scarcely  deserve  to  be  considered  ' '  wonderful. ' ' 
At  the  end  of  the  third  full  year,  October  1,  1911,  there  were 
5,130  policies  outstanding,  with  $1,956,038  insurance,  and  by 
August  31,  1912,  they  had  increased  to  6,616  policies,  repre- 
senting $2,492,181  insurance,  or  an  average  of  $378  per  policy. 
The  growth  is  there,  but  it  is  a  very  modest  growth,  scarcely 
comparable  with  that  of  either  industrial  or  fraternal  in- 
surance. 

Why  do  not  the  wage-workers  of  Massachusetts  rush  head 
over  heels  to  take  advantage  of  this  plan?  For  one  reason,  a 
good  many  are  already  overburdened  with  expensive  industrial 
insurance.  But  new  industrial  insurance  continues  to  be 
written.  The  weekly  collection  plan  and  the  energetic  collector1 
continue  their  effective  work.  The  question — and,  therefore, 
the  answer — are  in  no  way  different  from  those  asked  and 
given  with  very  much  more  extensive  insurance  plans  in  Euro- 
pean countries.  Whether  it  be  inability  or  unwillingness,  the 
facts  are  facing  one  squarely:  The  voluntary  Massachusetts 
system  will  hardly  succeed  in  solving  the  problem  of  de- 
pendency. There  is  no  doubt,  however,  that  in  familiarizing 
the  wage-worker  with  collective  insurance  through  their  mutual 
organizations,  in  educating  the  employers  to  assume  voluntarily 
part  of  the  cost  of  life  insurance  (which,  unfortunately,  very 
few  employers  as  yet  have  agreed  to),  the  plan  of  Mr.  Brandeis 
is  really  paving  the  way  for  a  compulsory  system. 

But  even  if  the  activity  of  this  system  were  a  hundred  times 
as  extensive  as  it  is,  does  the  life  insurance  furnished  (an  aver- 
age of  $378)  really  offer  a  satisfactory  solution  of  any  eco- 
nomic problem  ?  At  best  it  can  tide  over  the  period  of  extreme 
helplessness  only.  Wage-earners '  life  insurance  must  be  based 
upon  entirely  different  considerations — a  continuous  and  more 
or  less  prolonged  need  of  dependent  survivors. 

It  is  highly  significant,  therefore,  that  in  so  far  as  the  modern 
method  of  compulsion  has  been  applied  to  the  problem  of 


432  SOCIAL  INSURANCE 

premature  death,  it  has  taken  a  decided  stand  in  favor  of  sur- 
vivors'  pensions  rather  than  lump-sum  provisions. 

More  than  once  has  the  close  connection  between  different 
branches  of  social  insurance  been  indicated.  In  so  far  as  all 
accident  insurance  and  compensation  deals  with  fatal  acci- 
dents, it  solves  the  problem  of  life  insurance  at  least  to  that 
extent.  In  sickness  insurance  also  the  funeral  expenses  are 
taken  care  of,  so  that  this  part  of  the  problem  is  met  more  or 
less  satisfactorily  in  all  countries  where  true  social  insurance 
has  extended  over  the  accident  and  sickness  problem.  Less 
known  is  the  fact  that  much  more  satisfactory  provision  for 
widows  and  orphans  already  exists  for  large  bodies  of  wage- 
workers  in  many  European  countries,  namely,  for  railroad 
employees,  miners,  and  sailors,  whose  special  pension  funds, 
repeatedly  referred  to,  invariably  contain  liberal  provisions 
for  pensioning  widows  and  orphans. 

There  is  a  natural  combination  between  old-age  pensions  and 
life  insurance,  because  both  require  continuous  payment  of 
premiums  for  a  final  emergency.  There  is  also  a  natural  an- 
tagonism between  the  two,  because  with  limited  means  to  pur- 
chase insurance,  the  workman  under  a  voluntary  system  is 
usually  confronted  with  the  necessity  of  selecting  one  or  the 
other,  the  necessity  of  deciding  between  his  own  interest  and 
that  of  his  family.  In  the  industrial  groups  enumerated,  the 
necessity  for  such  selection  is  absent,  for  both  are  combined  in 
the  same  pension  fund.  One  contribution  pays  for  both,  and 
as  the  employer  in  all  these  funds  is  a  substantial  (in  many 
cases,  as  in  the  French  railroads,  the  main)  contributor,  it 
follows  that  a  part  of  the  burden  of  widows'  and  orphans' 
pensions — the  most  logical  form  of  life  insurance — is  put  upon 
the  industry.  Thus,  under  the  French  act  of  July  24,  1909, 
which  established  the  minimum  requirements  for  the  railroad 
pension  funds,  the  widow  of  a  pensioner  receives  half  of  his 
pension  for  life.  The  widow  of  an  employee  who  dies  while  in 
service  receives  half  of  the  pension  to  which  he  would  have  been 
entitled  because  of  his  age  and  length  in  service.  In  absence 
of  the  widow,  the  orphans  enjoy  the  same  rights.  As  a  full 
pension  under  this  act  is  equal  to  half  the  wages,  or  even  more, 
for  over  twenty-five  years  of  service,  the  widow 's  pension  may 
be  over  25$  of  the  wages.  Similar  provisions  exist  in  Italy, 
Russia,  etc.  The  amounts,  while  not  large,  are  nevertheless  an 


LIFE  INSURANCE  FOR  WORKMEN  433 

element  of  substantial  aid  to  the  survivors  when  judged  by 
local  standards,  and  are  in  any  case  very  much  more  substan- 
tial than  a  life  insurance  policy  of  a  few  hundred  dollars. 

Coming  now  to  the  latest  development,  namely,  national  sys- 
tems of  widows'  and  orphans'  insurance,  the  first  efforts  in 
that  direction  have  been  made  both  in  Germany  and  France, 
naturally  enough,  in  connection  with  their  old-age  insurance 
systems. 

From  the  very  beginning  of  the  old-age  insurance  systems 
some  consideration  was  shown  for  the  interests  of  the  surviving 
dependents.  During  the  parliamentary  discussions  of  the 
German  Old- Age  Insurance  Bill  in  1887  and  1888,  some  protec- 
tion of  widows  and  orphans  was  thought  necessary.  Sub- 
stantial provisions  were  thought  financially  not  feasible  at  the 
time,  and  a  compromise  was  found  in  the  provision  which 
returns  to  the  widow  or  orphans  the  contributions  made  by 
the  workman  if  he  dies  before  receiving  a  pension. 

In  France,  during  the  twenty  years  of  discussion  of  the  old- 
age  insurance  plan  which  was  finally  realized  in  1910,5 
the  comparative  needs  of  old-age  and  life  insurance  were  al- 
ways seriously  discussed.  Many  of  the  plans  proposed  even 
went  so  far  as  to  offer  the  freedom  of  choice  between  the  two. 
Other  plans  insisted  upon  combining  both  features  in  the 
system.  In  the  final  form  so  much  was  yielded  to  the  life 
insurance  idea,  that  both  forms  of  old-age  insurance  were  per- 
mitted; that  on  the  alienated-capital  plan,  as  well  as  the 
reserved-capital  plan  (see  page  333),  the  latter  providing  for 
the  return  of  the  premiums  in  case  of  death.  More  important, 
however,  is  the  direct  provision  for  death  benefits  in  connec- 
tion with  the  compulsory  old-age  insurance  system.  The  death- 
benefits  are  not  large:  they  vary  between  150  and  300  francs 
($29  and  $59)  according  to  the  size  of  the  family,  and  are 
payable  in  monthly  instalments  of  50  francs,  the  number  of  in- 
stalments varying  from  three  to  six.  Thus,  at  one  stroke,  a 
slight  amount  of  life  insurance  was  provided  for  some  12,- 
000,000  individuals,  an  achievement  which  industrial  insurance 
of  the  commercial  type  could  only  boast  of  at  the  cost  of  many 
millions  in  unproductive  administrative  expenses. 

But  the  most  extensive,  truly  national  system  of  widows' 

"I.  M.  Rubinow:  "Compulsory  Old  Age  Insurance  in  France,"  Po- 
litical Science  Quarterly,  September,  1911. 


434  SOCIAL  INSURANCE 

and  orphans '  pensions  is  the  one  adopted  by  Germany  right  on 
the  heels  of  the  French  act,  namely,  in  connection  with  the  re- 
vision of  all  its  social  insurance  legislation,  in  the  act  of  July 
19,  1911.  The  provision  for  a  national  system  of  widows' 
and  orphans'  pensions  is  the  most  important  addition  to  the 
whole  structure  of  social  insurance  made  by  that  act. 

Such  a  system  was  contemplated  for  many  years,  but  was 
delayed  because  of  the  fear  of  the  new  fiscal  burden  it  was  to 
create.  Therefore,  an  accumulation  of  a  fund  was  decided 
upon.  When,  in  1902,  a  new  customs  tariff  act  was  passed,  in- 
creasing duties  upon  many  articles  of  food,  an  effort  was  made 
to  mitigate  the  protests  against  these  new  duties  by  providing 
that  if  they  should  yield  an  excess  revenue  this  excess  should 
go  into  a  special  fund  to  provide  widows'  and  orphans'  pen- 
sions in  the  future.  The  receipts  from  this  source  were  rather 
uncertain.  Finally,  the  unwisdom  of  making  a  measure  of 
such  national  importance  as  widows'  and  orphans'  pensions 
dependent  upon  the  uncertainty  of  custom  receipts  was  recog- 
nized, and  the  present  system  as  established  depends,  as  does 
the  old-age  insurance,  partly  upon  the  contributions  of  both 
employers  and  employees,  and  partly  upon  state  subsidies. 

The  amount  of  the  widows'  and  orphans'  pension  is  made 
dependent  upon  the  amount  of  the  invalidity  pension  which 
the  deceased  was  receiving  or  would  have  been  receiving  at  the 
time.  The  widow  is  to  receive  30$  of  that  pension.  Orphans' 
pensions  are  given  to  children  under  fifteen  only,  and  for  the 
first  surviving  child  15$  is  given,  and  2  1-2$  only  for  the  other 
children.  In  addition  to  that,  however,  the  widow  is  entitled 
to  an  annual  subsidy  of  50  Marks  from  the  state  treasury, 
and  each  child  to  25  Marks.  Altogether  the  annual  pension 
may  not  be  great,  but  it  compares  favorably  with  the  invalidity 
pensions.  As  the  average  invalidity  pension  amounts  to  about 
$40,  or  170  Marks,  consisting  of  120  Marks  as  the  pension 
proper  and  50  Marks  (the  state  subsidy),  the  widow's  pension 
would,  on  the  average,  be  86  Marks,  or  $20,  and  that  of  a 
normal  family  with  three  children,  160  Marks,  or  $37.  In 
other  words,  a  widow's  pension  will  amount  to  about  half  the 
invalidity  pension,  and  a  family 's  pension  to  about  as  much  as 
the  whole  pension. 

These  pensions  are  not  altogether  a  state  gratuity.  For,  in 
order  to  make  them  possible,  an  increase  in  the  contributions 


LIFE  INSURANCE  FOR  WORKMEN 


435 


for  old-age  and  invalidity  insurance  was  required,  as  is  shown 
in  the  following  statement  (see  page  353  for  the  division  of  the 
wage-workers  into  classes). 


Newpr 
incli 
Class  of          widows'  a 
wage-workers               pene 

Pfenning 
per  week 

1  16 

•emiums, 
nding 
nd  orphans' 
lions 

Cents 
per  week 

3.8 
5.7 
7.6 
9.5 
11.4 

Old  premiums, 
exclusive  of 
widows'  and  orphans' 
pensions 

Pfenning         Cents 
per  week       per  week 

14            3.3 
20            4.8 
24            5.7 
30            7.1 
36            8.6 

Increase  for 
purpose  of 
paying 
pensions 

Pfenning       Cents 
per  week  per  week 

2              .5 
4              .9 
8            1.9 
10            2.4 

12            2.8 

II 

24 

III. 

32 

IV. 

40 

V. 

48 

The  increase  in  the  weekly  contribution  varies  from  one-half 
a  cent  for  the  lowest  wage-group,  to  less  than  three  cents  for 
the  highest  wage-group.  As  half  of  this  contribution  falls 
upon  the  employer,  only  from  1-4  cent  to  1.5  cents  per  week 
additional  is  required  from  the  wage-worker  himself. 

As  yet  this  new  German  system,  if  both  intensively  and 
extensively  considered,  represents  the  highest  development  of 
wage-workers'  life  insurance  While  more  liberal  provision 
for  a  few  industrial  groups  exists,  its  very  limitation  reduces 
its  importance.  Of  course  it  would  be  too  much  to  expect  that 
the  rather  meager  provision  thus  given  will  altogether  solve 
the  problem  of  the  widow  and  orphan,  but  it  is  a  step  in  the 
right  direction  nevertheless.  The  fact  that  as  yet  it  remains 
the  only  example  of  national  life  insurance,  serves  to  under- 
score the  vast  field  of  social  insurance  measures  yet  untouched, 
the  many  economic  problems  which  social  insurance,  though 
capable  of  meeting,  has  as  yet  refused  to  meet.  There  can  be 
little  doubt  that  the  next  decade  will  see  a  further  extension 
in  the  same  direction  in  many  European  countries. 

Perhaps  nothing  better  illustrates  the  irresistible  develop- 
ment of  social  insurance  principles  in  the  United  States  than 
the  very  recent  movement  towards  mothers'  pensions  in  a  num- 
ber of  states.  It  matters  little  that  this  movement  grew  en- 
tirely independently  of  any  cognizance  of  insurance  principles ; 
that  few,  if  any,  of  its  furtherers  thought  of  the  measures 
advocated  as  a  part  of  a  life-insurance  system ;  and  that,  as  a 
matter  of  fact,  its  essential  features  are  those  of  a  system  of 
public  relief  rather  than  insurance ;  for  the  same  is  true  of  the 


436  SOCIAL  INSURANCE 

entire  old-age  pension  development  in  many  countries.  The 
essential  fact  remains  that  the  problem  of  orphanage  is  dis- 
tinctly recognized  as  a  public  problem,  and  the  insufficiency 
or  undesirability  of  leaving  this  problem  to  voluntary  charity 
is  at  the  foundation  of  popular  clamor  for  these  measures. 
In  forcing  this  question  of  orphanage  to  the  foreground  long 
before  the  other  problems  of  poverty  have  been  provided  for, 
the  United  States  is  disturbing  the  historical  sequence  in  the 
development  of  social  insurance  which  has  been  typical  of 
Europe.  But  this  only  goes  to  show  that  having  fallen  in  line 
later  than  other  industrial  countries,  the  American  people  may 
be  expected  to  attack  all  the  branches  of  social  insurance  at 
once. 

As  in  the  case  of  compensation  legislation,  the  movement, 
starting  in  one  state,  has  suddenly  acquired  national  impor- 
tance.6 Illinois  passed  the  first  "  Mothers '  Pension  "  act  in 
1911;  California  and  Colorado,  in  1912;  and  fourteen  more 
states, — Washington,  Utah,  South  Dakota,  Idaho,  Minnesota, 
Iowa,  Nebraska,  Ohio,  New  Jersey,  Pennsylvania,  Massachu- 
setts, Michigan,  Wisconsin,  and  Oregon, — in  the  spring  of  the 
current  year.  In  addition,  two  municipalities,  Milwaukee  and 
St.  Louis,  have  established  similar  systems  independently  of 
state  action.  In  many  other  states,  including  New  York,  the 
bills  were  introduced,  but  failed  of  passing;  but  favorable 
action  may  be  expected  in  the  near  future. 

To  be  sure,  the  provisions  of  the  many  acts  clearly  indicate 
their  close  relationship  to  public  relief  rather  than  to  insur- 
ance. While  popularly  known  as  "  Mothers'  Pensions/' 
they  really  provide  pensions  for  dependent  children,  to  be 
paid  to  widows  or  wives  of  deserting,  disabled,  or  imprisoned 
husbands.  Emphasis  is  placed  upon  moral  considerations  as 
much  as  upon  economic  ones ;  the  purpose  aimed  at  is  claimed 
to  be  the  preservation  of  the  family,  and  the  avoidance  of 
commitment  of  children  to  public  institutions.  Evidence  is, 
therefore,  required  that  the  family  is  not  only  in  need,  but 
also  worthy  of  preservation.  When  these  conditions  are  certi- 
fied to  by  the  proper  officers,  an  allowance  may  be  granted — 

6  See  "  Pensions  for  Mothers,"  by  Professor  Edward  T.  Devine,  Amer- 
ican Labor  Legislation  Review,  June,  1913,  for  adverse  criticism,  and 
discussion  by  William  Hard  in  the  same  issue;  The  Survey,  July  5,  1913, 
pp.  450-51,  for  recent  analysis  of  the  acts. 


LIFE  INSURANCE  FOR  WORKMEN  437 

by  the  courts  in  some  states,  as  in  Illinois,  by  special  commit- 
tees in  others,  as  Pennsylvania.  The  amounts  as  provided  in 
most  states  are  fairly  liberal — $15  for  one  child,  and  $7  for 
each  additional  child  under  sixteen,  in  Illinois;  $12  for  one 
child,  $20  for  two,  and  $5  for  each  additional  child,  in  Penn- 
sylvania, etc. 

It  is  rather  significant  that  these  results  were  achieved  in 
the  face  of  a  very  definite  opposition  from  a  social  group  in 
which  the  most  cordial  support  of  these  measures  might  have 
been  expected — organized  charity,  and  many  social  workers. 
The  argument  was  advanced  against  mothers'  pensions,  that 
it  interfered  with  private  generosity  towards  the  needy,  and 
that  it  was  also  less  discriminating  and  tended  to  preserve 
families  perhaps  unworthy  of  preservation.  Thus,  a  method 
of  social  provision  is  being  criticised  for  relieving  private 
charity,  i.e.,  for  accomplishing  something  which  is  usually  ex- 
pected of  all  such  measures,  and  the  failure  to  accomplish  which 
is  also  frequently  mentioned  in  Europe  in  severe  condemnation 
of  the  social  insurance  movement.  In  view  of  the  sudden 
growth  of  this  peculiar  movement,  it  is  exceedingly  interesting 
to  observe  that  already  it  has  shown  its  tendency  to  develop 
into  an  international  movement.  On  April  24,  1913,  an  act 
establishing  pensions  for  widows  with  children  (styled  perhaps 
more  accurately  public  aid)  was  passed  in  Denmark,  the 
fatherland  of  the  non-contributory  pension  system.  According 
to  this  act,  which  is  to  go  into  effect  on  January  1,  1914,  the 
following  benefits  are  to  be  paid  to  widows  out  of  public  funds 
(without  recourse  to  the  Poor  Law)  for  the  purpose  of  main- 
taining and  educating  their  children :  £5  lls.  Id.  per  annum 
(about  $27)  for  each  child  under  2  years;  £4  8s.  lOd.  (about 
$20)  for  each  child  from  2  to  12  years  old;  and  £3  6s.  8d. 
(about  $16.60)  for  each  child  13  to  14  years  old.  (This  in- 
formation has  been  gleaned  from  the  British  Labour  Gazette, 
where  the  amounts  are  stated  as  here  given.) 

The  mothers'  pension  movement,  as  it  is  developing  in  the 
United  States,  does  not  offer,  even  theoretically,  any  com- 
prehensive remedy  for  the  problem  of  widowhood  and  orphan- 
age. Its  dependence  upon  the  philosophy  of  public  relief  is 
too  evident  to  permit  it  to  be  classed  with  measures  of  economic 
justice.  The  necessity  of  application  and  investigation,  and 
the  dependence  of  the  grant  upon  some  extraneous  judgment 


438  SOCIAL  INSURANCE 

as  to  economic  need  and  moral  worth,  are  conditions  which 
differentiate  it  very  decidedly  from  an  automatic  system  of 
insurance.  In  short,  the  arguments  made  use  of  in  the  dis- 
cussion of  old-age  insurance  versus  pensions  are  doubly  ap- 
plicable here.  But  as  an  admission  of  the  necessity  of  public 
provision,  and  of  its  preference  to  private  charity,  these  acts 
mark  a  very  important  step  forward,  a  step  towards,  if  not 
quite  yet  a  measure  of,  social  insurance. 


PART  V 
INSURANCE  AGAINST  UNEMPLOYMENT 


CHAPTER  XXVI 
THE  PROBLEM  OF  UNEMPLOYMENT 

ALL  criticism  of  modern  industrial  society  focuses  on  the 
conditions  of  unemployment,  especially  as  expressed  in  large 
industrial  crises ;  and  in  search  of  correspondingly  broad  eco- 
nomic measures  of  relief,  the  suggestion  of  insurance  is  often 
sneeringly  referred  to  as  being  altogether  incapable  of  deal- 
ing with  the  grave  situation  confronting  the  wage-workers.  It 
is  perhaps  advisable,  therefore,  to  point  out  in  the  very  be- 
ginning, that  in  this  respect,  theoretically  at  least,  the  prob- 
lem of  unemployment  is  not  different  from  problems  of  acci- 
dent, sickness,  or  invalidity.  In  each  case,  it  may  .be  readily 
admitted  that  prevention  is  better  than  relief.  It  is  certainly 
much  more  desirable  that  there  should  be  no  industrial  acci- 
dents than  that  we  should  have  complicated  systems  of 
compensation.  This  is  a  legitimate  problem  for  proper  factory 
inspection,  for  further  development  of  safety  appliances,  and 
for  other  methods  of  social  control  of  industrial  activity,  and 
while  a  great  deal  can  be  done  and  must  be  done  in  that  line, 
while  perhaps  a  great  proportion  of  industrial  accidents  are 
preventable  and  therefore  socially  unnecessary,  yet  it  may  be 
admitted  at  the  outset  that  the  entire  abolition  of  industrial 
accidents  will  remain  a  Utopia  for  many  years  to  come,  if  it 
ever  will  be  accomplished. 

Even  thus,  industrial  hygiene  and  general  sanitation,  wise 
living  and  a  high  standard  of  life  might  be  expected  to  reduce 
the  rate  of  sickness  among  wage-workers  as  well  as  among  all 
other  classes  of  the  community,  though  perhaps  no  serious  man 
would  expect  total  abolition  of  all  physical  ailments.  It  may  be 
reasonably  expected  that  the  probable  conquest  of  tuberculosis 
and  (the  now  remote,  yet  not  impossible)  conquest  of  cancer 
will  probably  reduce  the  mortality  in  youth  and  prime  of  life. 
But  the  day  is  far  distant  when  all  premature  deaths  may  be 
prevented  and  life  insurance  made  unnecessary.  Shortening 
of  hours,  decrease  of  intensity  by  proper  social  control,  and 

441 


442  SOCIAL  INSURANCE 

elimination  of  muscular  strength  by  substitution  of  machinery 
for  muscle  power,  may  return  the  old  age  to  industry,  or  at 
least  prevent  the  premature  exhaustion  leading  to  chronic  in- 
validity, but  the  change  at  best  will  be  long  in  coming. 

If,  therefore,  a  fruitful  field  remain  for  application  of  prin- 
ciples of  insurance  to  the  problems  of  accident  and  disease, 
the  same  must  hold  true  of  the  condition  of  unemployment. 
Efforts  to  adjust  the  demand  for  labor  to  its  supply,  and  thus 
so  regulate  our  entire  economic  life  that  industrial  crises  and 
periods  of  depression  should  be  abolished,  are  certainly  com- 
mendable, but  the  fact  remains  that  under  modern  industrial 
conditions  and  until  a  national  system  of  co-operative  economy 
has  entirely  supplanted  it,  there  will  be  a  greater  or  smaller 
risk  of  unemployment  with  its  consequent  loss  of  earnings  as  a 
problem  of  economic  life. 

That  there  is  at  times  a  very  large  amount  of  unemployment 
during  the  grave  disturbances  of  economic  life  known  as 
economic  crises  or  industrial  and  commercial  depressions,  is  a 
fact  too  generally  known  to  require  elaborate  evidence. 
But  outside  of  the  army  of  wage-workers  themselves,  there  is 
comparatively  little  knowledge  of  an  equally  large  or  per- 
haps, on  the  whole,  even  larger  amount  of  unemployment  at  all 
times  and  under  all  conditions  of  industrial  activity. 

Notwithstanding  the  tremendous  importance  of  the  prob- 
lem, statistical  data  concerning  the  extent  of  unemployment 
are  as  yet  very  unsatisfactory.  An  enormous  amount  of  frag- 
mentary information  is  available,  but  it  is  either  unreliable 
or  incomplete.  It  is  claimed  by  many  students  of  the  problem 
that  in  the  study  of  relief  measures,  the  first  pressing  problem 
is  that  of  obtaining  satisfactory  statistics,  without  which  a 
scientific  basis  for  action  is  lacking.  On  the  other  hand,  it  is 
equally  evident  that  these  statistics,  in  the  very  nature  of 
things,  will  never  be  satisfactory  until  some  systematic  system 
of  insurance  is  created,  because  without  it,  it  is  almost  impos- 
sible to  trace  all  existing  unemployment.  This  appears  to  be 
a  vicious  circle,  which  is  not  different,  however,  from  the 
situation  concerning  accidents  or  sickness,  for  complete  acci- 
dent or  sickness  statistics  were  never  available  until  systems  of 
compensation  were  established. 

Moreover,  the  technical  difficulties  in  connection  with  unem- 
ployment statistics  are  evidently  much  greater.  An  accident 


THE  PROBLEM  OF  UNEMPLOYMENT         443 

is  a  definite  event  which  may  be  easily  recorded.  Even  sick- 
ness can  be  established  in  the  majority  of  cases  from  the 
outside.  But  unemployment  or  lack  of  employment  is  a  more 
or  less  diffuse  condition,  which  requires  careful  definition. 
It  is  not  sufficient  to  record  the  external  fact  of  absence 
from  work.  Unemployment  must  be  carefully  differentiated 
from  any  form  of  disability  and  this  differentiation  may  some- 
times be  rather  difficult.  The  difficulty  becomes  still  greater 
when  involuntary  unemployment  (true  lack  of  employment) 
must  be  distinctly  separated  from  such  voluntary  unemploy- 
ment as  may  be  due  to  trade  disputes,  or  faults  of  character, 
or  a  definite  desire  to  defraud. 

Complete  statistics  of  unemployment  would  need  to  furnish 
information  as  to  the  total  time  lost  from  lack  of  work  in  a 
certain  country  during  the  shortest  industrial  cycle,  which  is 
a  year.  No  such  information  exists,  as  was  stated  above.  The 
fragmentary  direct  information  available  is  usually  of  two 
kinds:  either  a  determination  of  the  entire  number  of  per- 
sons unemployed  on  a  certain  day,  such  as  can  readily  be 
made  in  connection  with  a  population  census  but  conveys 
little  valuable  information  concerning  the  problem,  because  of 
its  dependence  upon  the  accidental  and  exceptional  circum- 
stances of  the  day  when  the  census  was  taken,  or  a  more 
complete  study  of  fluctuations  of  unemployment  within  narrow 
limits  of  a  trade  or  community.  A  somewhat  similar  effort 
was  made  by  several  U.  S.  Censuses  to  discover  the  total 
amount  of  unemployment  for  a  whole  year,  but  the  results, 
depending  as  they  do  upon  the  memories  of  millions  of  people, 
are  not  considered  very  trustworthy.1 

It  is  worth  while  to  quote  a  few  of  the  data  available,  so  as 
to  get  at  least  a  general  conception  of  the  number  of  unem- 
ployed wage-workers.  A  very  interesting  census  of  unemploy- 
ment was  taken  in  Germany  in  1895,  and  though  the  data  are 
considerably  antiquated,  they  have  not  lost  their  interest.  In 

1  For  a  good  deal  of  valuable  information,  the  reader  is  ^ referred  to 
the  comprehensive  Third  Report  of  the  New  York  Commission  on  Em- 
ployers' Liability,  etc.,  entitled  Unemployment  and  the  Lack  of  Farm 
Labor:  "Unemployment  in  the  State  of  New  York,"  by  Dr.  W.  M. 
Leisersor;  and  "Unemployment:  A  Problem  of  Industry,"  by  W.  H. 
Beveridge  (mainly  English  data),  and  the  respective  sections  in  the 
various  chapters  of  the  Twenty-fourth  Report  of  the  U.  S.  Commis- 
sioner of  Labor. 


444  SOCIAL  INSURANCE 

a  year  of  normal  industrial  activity  in  Germany  in  the  mid- 
dle of  June,  when  conditions  of  employment  are  at  their  best, 
179,000  persons  were  found  unemployed,  constituting  a  little 
over  1$  of  the  army  of  wage-workers.  By  the  beginning  of  De- 
cember of  the  same  year,  the  number  had  increased  to  554,000, 
or  nearly  3  1-2$,  indicating  a  tremendous  increase  of  unemploy- 
ment in  winter,  a  feature  of  unemployment  which  we  shall 
have  occasion  to  refer  to  presently.  An  inquiry  as  to  the 
duration  of  unemployment  on  the  dates  on  which  data  were 
collected  showed  that  nearly  45$  of  them  in  June  had  been 
unemployed  over  one  month,  and  in  December  over  33$  had 
been  so  unemployed.  Some  17$  had  been  unemployed  for 
over  three  months  in  June,  and  about  8$  in  December. 

More  significant  are  the  data  concerning  the  cases  of  un- 
employment per  100  employees  as  reported  by  labor  organiza- 
tions for  a  longer  period  of  time. 

The  reports  of  German  trade  unions  indicate  that  during 
the  first  quarter  of  the  year  when  unemployment  is  usually 
at  its  highest  percentage,  cases  of  unemployment  fluctuated 
between  6$  in  years  of  highest  activity  such  as  1906,  and 
nearly  13$  in  years  of  industrial  depression,  such  as  1909. 
Yet  it  is  a  well-known  fact  that  organized  labor,  because 
largely  skilled,  suffers  from  unemployment  a  great  deal  less 
than  unorganized  and  especially  casual  and  unskilled  labor. 

In  France,  a  census  taken  in  1901  showed  over  314,000 
unemployed  out  of  a  total  of  over  10,000,000  wage-workers,  or 
a  similar  proportion  of  a  little  over  3$.  The  average  number 
of  unemployed,  as  reported  by  the  trade  unions,  fluctuated 
between  7.8$  and  11.9$  in  1908,  and  between  6.4$  and  13.5$ 
in  1909,  thus  showing  the  effects  of  the  industrial  depression  of 
1908-1909. 

In  the  United  Kingdom,  the  "  unemployed  percentage,"  as 
reported  by  several  hundred  unions  and  compiled  by  the  Labor 
Gazette,  fluctuated  during  the  fifteen  years,  1894-1908,  between 
2$  and  10$.  In  the  United  States  the  special  inquiries  made 
in  connection  with  the  census  of  1890  and  1900  are  available 
(the  results  of  a  similar  inquiry  made  in  1910  not  having  been 
published  yet),  and  while  the  data  are  admitted  to  be  very 
untrustworthy,  they  are,  nevertheless,  extremely  suggestive. 
In  1890,  out  of  23,318,183  gainfully  employed,  3,523,730,  or 
15.1$,  had  reported  having  been  unemployed  for  some  time 


THE  PROBLEM  OF  UNEMPLOYMENT          445 

during  the  preceding  year.  Ten  years  later,  out  of  29,073,233 
employed,  6,468,964,  or  22.3#,  reported  unemployment.  There 
is  evidently  a  problem  here  that  concerns  millions  of  wage- 
workers.  Its  true  significance  is  very  much  greater  than  the 
percentages  given  above  would  indicate,  for  as  a  basis  the 
number  of  all  persons  employed  and  not  of  wage-workers  only 
(whose  number  cannot  be  ascertained),  has  been  taken. 

NUMBER  OF  UNEMPLOYED  IN  CENSUS  YEAR  1900  ACCORDING  TO 
LENGTH  OF  UNEMPLOYMENT 

Time  unemployed  Number        Percentage 

1—  3  months 3,177,753        49.1 

4 —  6  months 2,554,925        39.5 

7—12  months 736,286        11.4 

6,468,964      100.0 

Over  one-half  of  these  6,500,000,  and  possibly  three-fourths 
of  them,  suffered  from  unemployment  to  a  degree  which  could 
not  fail  to  cause  national  distress.  The  total  time  lost  to  the 
productive  industries  of  the  country  was  enormous.  An 
approximate  estimate  would  indicate  that  during  one  year 
over  1,900,000  years  of  productive  labor  were  lost;  or  what 
amounts  to  the  same  thing,  of  29,000,000  gainfully  employed, 
on  an  average  nearly  2,000,000  had  been  idle  throughout  the 
whole  year. 

The  measure  of  unemployment  disclosed  by  these  figures 
seems  to  be  much  greater  in  the  United  States  than  in  Europe. 
It  must  be  remembered  that  neither  1889-1890  nor  1899-1900 
were  years  of  industrial  depression.  If,  therefore,  a  similar 
census  was  taken  for  1893-1894,  or  1907-1908,  the  results  might 
be  still  more  depressing,  and  the  "  wild  "  estimate  of  five  to 
six  millions  unemployed  during  a  severe  industrial  crisis  such 
as  the  United  States  is  particularly  subject  to,  does  not  appear 
so  wild  after  the  statistical  data  quoted  are  contemplated. 

What  other  evidence  exists  concerning  conditions  in  the 
United  States  corroborates  these  alarming  estimates.  The 
figures  published  every  quarter  by  the  New  York  Bureau  of 
Labor  concerning  conditions  in  the  New  York  trade  unions, 
are  very  familiar ;  the  percentage  of  union  workers  unemployed 
at  the  end  of  September  fluctuated  during  the  last  fifteen  years 
between  4.7#  in  1899  and  22.5#  in  1908;  at  the  end  of  March, 


446  SOCIAL  INSURANCE 

between  9.9$  in  1906  and  30.6$  in  1897  and  35.7$  in  1908. 
No  European  figures  of  unemployment  reach  anything  like 
such  heights.  The  problem  of  unemployment,  therefore,  ap- 
pears as  a  particularly  serious  problem  in  the  United  States. 

While  it  is  impossible  to  enter  here  upon  any  careful 
analysis  of  these  data,  there  are  two  features  of  unemploy- 
ment disclosed  by  unemployment  statistics  which  must  at 
X  least  be  briefly  referred  to:  (1)  The  fluctuations  of  unemploy- 
ment in  time,  and  (2)  the  difference  of  the  degree  of  unem- 
ployment in  different  trades. 

Two  cycles  of  unemployment  are  disclosed  by  all  statistical 
data  of  unemployment  published,  the  shorter  annual  cycle  and 
the  longer  cycle  (anywhere  from  seven  to  fifteen  years  long) 
between  the  ever-recurring  periods  of  industrial  activity  and 
industrial  depression. 

There  is  always  a  good  deal  more  of  unemployment  in  the 
winter  than  in  the  summer;  only  when  an  industrial  crisis, 
altogether  independent  of  climatic  conditions,  should  break  out 
in  the  summer  is  this  condition  disturbed.  As  will  be  indicated 
later,  this  is  due  to  a  few  large  trades  subject  to  seasonal 
fluctuations  because  of  weather  conditions;  building,  con- 
struction, and  farming  are  three  such  trades,  which  are  im- 
portant enough  to  influence  the  general  level  of  unemployment. 
A  five-years'  average  in  France  shows  a  variation  between 
8$  for  July-September,  and  10.5$  in  December-February. 
For  fifteen  years  the  average  unemployed  percentage  of  the 
British  unions  for  July  amounted  to  3.7$,  and  for  January 
to  6.6$.  According  to  the  New  York  figures,  the  average  per- 
centage of  unemployment  at  the  end  of  March  for  1897-1909 
was  over  20$,  and  the  end  of  September,  only  10$. 

The  problem  of  unemployment  is  to  a  large  extent  a  winter 
problem,  which  is  a  serious  factor  in  itself,  for  in  winter  all 
conditions  make  the  struggle  for  existence  more  difficult: 
higher  prices  for  food,  greater  need  for  clothing;  increased 
expenditure  for  light  and  an  additional  expense  for  fuel  and 
absolute  dependence  of  life  itself  upon  continuous  shelter — 
such  are  the  conditions  under  which  the  greater  share  of  unem- 
ployment must  be  borne. 

The  larger  cycle  works  more  slowly,  from  crisis  to  indus- 
trial expansion  and  down  again  to  an  industrial  crisis  or 
depression.  This  fluctuation  is  perhaps  strongest  seen  in 


THE  PROBLEM  OF  UNEMPLOYMENT          447 

American  data,  especially  during  the  last  two  decades,  includ- 
ing as  they  do  two  very  severe  industrial  crises,  with  at  least 
two  periods  of  less  severe  depression  in  industry  and  com- 
merce. These  marked  fluctuations  present  a  strong  contrast 
to  the  problems  of  accident  and  disease  where  the  risk  is 
fairly  uniform  from  year  to  year,  and  while  it  changes  through- 
out the  different  seasons,  does  so  but  slowly. 

On  the  contrary,  as  far  as  differences  between  one  trade 
and  another  are  concerned,  there  is  a  marked  analogy  between 
the  risk  of  unemployment  and  the  risk  of  accident.  In  so 
far  as  accurate  statistical  information  is  available,  it  proves 
a  fairly  definite  unemployment  ratio  for  each  trade  and  fairly 
uniform  conditions  concerning  seasonal  and  even  cyclical 
fluctuations.  This  is  but  natural,  since  the  frequency  of 
unemployment  or  the  general  relation  between  supply  and 
demand  of  labor  depends  largely  upon  the  organization  of 
tbj  specific  trade,  as  well  as  of  the  market  for  the  products 
of  the  trade.  Every  large  enumeration  of  the  unemployed, 
such  as  has  been  made  in  connection  with  the  national  census 
already  referred  to,  in  Germany,  France,  or  the  United 
States,  demonstrates  this. 

To  an  American  reader,  the  situation  in  the  United  States 
is  necessarily  of  greatest  import.  A  reference  to  the  volume 
on  "  Occupations  "  of  the  Twelfth  Census  (pages  ccxxv- 
ccxxvii  and  especially  ccxxxii-ccxxxiii)  will  furnish  a  wealth 
of  information  which  cannot  possibly  be  embodied  here.  When 
all  the  occupations  are  arranged  in  order  of  the  percentages 
showing  some  unemployment  in  the  year  of  the  census  of  1900, 
the  percentage  is  found  to  fluctuate  between  59.9$  for  glass- 
workers  and  1.9$  for  physicians,  or,  limiting  the  inquiry  to 
mechanical  trades  only,  11.2$  for  confectioners.  The  building 
trades  show  a  specially  high  percentage :  masons  and  plasterers 
over  55$ ;  paper-hangers,  carpenters  and  joiners,  and  ordinary 
laborers  from  40$  to  50$;  of  miners,  44$  suffered  from  some 
unemployment,  and  marble  cutters  were  only  slightly  better 
off  (39.5$)  ;  in  the  iron  and  steel  industry  and  lumbering 
industry,  the  proportion  was  about  30$.  Workingmen  in 
various  textile  industries  showed  from  20$  to  30$,  and  similar 
percentages  were  indicated  in  the  clothing  trade.  Among 
transportation  employees,  the  condition  was  better,  only  15$ 
to  20$  in  various  branches  of  this  industry  reporting  unem- 


448  SOCIAL  INSURANCE 

ployment.  In  the  food  industry,  the  degree  of  unemploy- 
ment was  about  10$,  and  among  commercial  employees  of 
various  groups,  it  was  under  10$;  the  influence  of  the  trade 
upon  the  degree  of  unemployment  is  thus  clearly  established. 

The  effort  to  determine  the  ultimate  economic  causes  of 
unemployment,  though  it  presents  a  fascinating  subject  of 
economic  inquiry  and  investigation,  is  beyond  the  scope  of 
this  work.  In  itself,  it  may  boast  of  an  enormous  literature 
because  there  is  scarcely  any  important  factor  of  economic 
organization  that  is  without  its  influence  upon  the  state  of 
employment;  and  there  is  hardly  a  measure  of  economic 
policy  that  is  not  defended  or  attacked  because  of  its  influence 
upon  the  conditions  of  labor  supply  and  demand.  As  Mr. 
W.  H.  Beveridge  tersely  put  it,  "  the  problem  of  unemploy- 
ment lies,  in  a  very  special  sense,  at  the  root  of  most  other 
social  problems."  It  is  sufficient  for  our  purpose,  waving 
aside  any  search  for  ultimate  causes,  to  indicate  the  active 
factors  whose  influence  upon  the  degree  of  unemployment  is 
a  matter  of  everyday  observation. 

The  three  main  factors  of  variations  of  the  unemployment 
rate  are  the  (ten  or  fifteen  years)  long  cycle,  from  crisis  to 
crisis,  the  shorter  annual  cycle,  and  the  variations  between 
trades  indicate  at  least  three  groups  of  such  factors. 

Of  these  three,  those  causing  the  ever-recurring  economic 
crises  are  most  obscure.  From  the  Malthusian  theory  of 
over-population,  through  Jevons'  theory  of  sun  spots,  Hob- 
son's  theory  of  over-production  due  to  excessive  savings,  and 
the  theory  of  psychological  cycles,  over-speculation,  Tugan 
Baranowsky's  theory  of  misdirected  production  down  to  the 
theory  of  under-consumption  because  of  the  extraction  of 
surplus  value,  various  explanations  have  been  given  by  some 
economic  writers  only  to  be  discarded  by  others.  Socialists 
have  designated  industrial  crises  with  their  necessary  con- 
sequences, unemployment  and  distress,  as  the  inevitable  con- 
sequences of  competitive  industry.  Somewhat  unexpectedly, 
a  non-socialistic  writer  has  recently  arrived  at  the  same  con- 
clusion: "  So  long  as  the  industrial  world  is  split  up  into 
separate  groups  of  producers — each  group  with  a  life  of  its 
own  and  decaying  in  ceaseless  attrition  upon  its  neighbors — 
there  must  be  insecurity  of  employment.  It  is  probable  that 
at  least  one  of  the  most  striking  specific  factors  in  the  prob- 


THE  PROBLEM  OF  UNEMPLOYMENT          449 

lem — namely,  cyclical  fluctuations  in  trade — may  be  traced 
ultimately  to  the  same  source.  Unemployment,  in  other  words, 
is  to  some  extent,  at  least,  part  of  the  price  of  industrial  com- 
petition, part  of  the  waste,  without  which  there  could  be 
no  competition  at  all.  Socialist  criticism  of  the  existing 
order  has,  therefore,  on  this  side  much  justification/' 2  Thus, 
back  of  this  most  important  factor,  which  statistically  has 
been  shown  to  be  responsible  for  the  largest  amount  of  unem- 
ployment, there  are  blind  forces  of  economic  organization 
over  which  the  working  population  has  no  control  at  all. 

The  fluctuations  within  the  shorter  annual  cycle  are  due 
to  factors  of  a  more  obvious  character.  These  cover  seasonal 
unemployment,  due  to  the  great  importance  of  seasonal  trades, 
i.e.,  trades  active  only  through  a  part  of  the  year  or  much  more 
active  during  one  part  of  the  year  than  the  other.  These 
seasonal  fluctuations  may  be  due  to  inevitable  weather  con- 
ditions, such  as  influence  all  the  building  and  construction 
work  and  farm  labor.  They  may  be  due  to  similar  fluctuations 
in  the  sources  of  supply,  such  as  canning  fruit  and  vege- 
tables. But  frequently  they  depend  upon  the  weather  con- 
ditions but  indirectly.  This  is  true  of  the  whole  important 
clothing  industry  where  changes  in  weather  conditions  create 
seasons  of  extensive  demand  for  the  product  of  industry  and 
the  swiftness  of  changes  in  fashions  forces  the  compression  of 
production  within  the  shortest  possible  time  preceding  the 
opening  of  the  market. 

And  then,  there  is  the  fluctuation  between  trade  and  trade, 
between  occupation  and  occupation,  which  partly  depends 
upon  seasonal  changes,  but  partly  upon  other  factors  as  well. 
There  are  occupations  in  which  efficiency  is  closely  dependent 
upon  permanency  of  employment — such  as  clerical  work  or 
railroading.  At  the  other  extreme,  there  are  other  occupa- 
tions in  which  this  labor  contract  is  made  for  a  day  or  a 
few  hours  only.  This  class  covers  a  good  proportion  of  all 
unskilled  labor,  and  perhaps  the  most  typical  example  is  the 
work  of  loading  and  unloading  vessels  on  docks.  There  may 
be  work  all  the  year  around,  but  no  employer  has  constant 
demand  for  labor,  and  no  employee  a  constant  position.  As 
a  result,  there  is  constant  searching  for  employment  with  an 
enormous  loss  of  working  time  for  each  individual  employee. 
2  W.  H.  Beveridge,  Unemployment,  p.  235. 


450  SOCIAL  INSURANCE 

Furthermore,  there  are  many  minor  ones  which,  together, 
may  be  responsible  for  a  considerable  share  of  unemploy- 
ment. Old  industries  break  down  and  new  ones  are  created. 
The  readjustment  is  not  always  easy  and  always  takes  time; 
some  of  the  employees  may  quickly  adapt  themselves  to  a 
new  occupation,  others,  under  the  influence  of  age  or  some 
other  unfavorable  factors,  may  never  succeed. 

Large  undertakings  come  to  an  end  and  then  a  large  sur- 
plus of  labor  power  is  liberated,  which  may  not  find  employ- 
ment at  once.  Occasionally  industrial  establishments  are 
transferred  from  one  locality  to  another  and  labor  is  seldom 
mobile  enough  to  follow  this  change  immediately.  In  the 
process  of  consolidation  of  many  independent  industrial  es- 
tablishments into  large  "  trusts/'  some  of  them  may  cease 
operations  altogether  and  similar  liquidations  of  manufactur- 
ing establishments  occur  for  other  reasons — business  failures, 
of  which  10,000  or  15,000  occur  annually  in  this  country, 
death  of  employers,  etc.  In  every  case  a  certain  amount  of 
unemployment  is  created. 

It  is  necessary  to  bear  all  these  factors  in  mind  in  order 
to  place  the  responsibility  for  unemployment  where  it  be- 
longs, for  the  point  of  view  is  still  frequently  met  that  unem- 
ployment is  a  fault  of  character  rather  than  of  opportunity. 
The  factors  briefly  enumerated  above  are  mostly  impersonal 
factors,  and  those  that  are  personal  pertain  to  the  personality 
of  the  employer  and  not  the  employee.  Mr.  W.  H.  Beveridge 
has  very  properly  given  his  excellent  study  of  unemployment 
the  subtitle  "  A  Problem  of  Industry  "  (not  of  character). 
The  greatest  share  of  unemployment  is  due  to  faults  of  indus- 
trial and  economic  organization,  over  which  the  employee,  as 
an  individual  in  any  case,  has  no  control.  Unemployment 
is  due  to  disturbances  in  the  demand  for  labor  and  not 
in  its  supply,  which  is  fairly  constant  or  at  least  slow  in  its 
changes. 

It  is  true  nevertheless  that  a  personal  factor  of  unemploy- 
ment exists.  It  is  true  that  the  less  efficient,  less  energetic 
suffer  more  from  unemployment,  not  only  because  they  are 
less  successful  in  finding  employment,  but  because  they  are 
the  first  to  lose  it  when  reduction  of  force  becomes  necessary. 
From  the  less  efficient  the  transition  is  gradual  to  those  only 
partially  employable  or  those  altogether  unemployable,  the 


THE  PROBLEM  OF  UNEMPLOYMENT          451 

"  hobo  "  and  the  tramp,  down  to  the  habitual  criminal. 
These  may  present  a  separate  problem  of  their  own,  a  prob- 
lem of  social  hygiene,  prophylaxis,  and  medicine,  but  even  in 
dealing  with  this  social  disease,  it  is  well  to  study  carefully 
its  etiology. 

There  may  be  hereditary  tramps  with  unconquerable  wan- 
derlust— individuals,  who,  if  grown  up  under  more  favorable 
circumstances,  might  have  developed  into  famous  globe-trot- 
ters, hunters,  or  sportsmen.  But,  after  all,  this  type,  like 
the  type  of  the  hereditary  criminal,  is  an  exceptional  one; 
most  tramps,  like  most  criminals,  are  creatures  of  those  circum- 
stances which  have  forced  them  out  of  the  routine  of  honest 
and  systematic  toil.  "  The  man,"  says  W.  H.  Beveridge, 
"  who  is  continually  tramping  the  streets  in  search  of  em- 
ployment, is  losing  quite  certainly  in  nearly  all  the  qualities 
that  go  to  make  for  industrial  value." 

It  would  seem  to  be  hardly  necessary  to  dwell  upon  the 
economic  consequences  of  unemployment  upon  those  suf- 
fering from  it.  The  sudden  increase  in  the  number  of  people 
out  of  work  which  occurs  during  an  economic  crisis,  seldom 
fails  to  cause  an  alarming  amount  of  very  acute  distress,  even 
in  connection  with  the  highest  wage  levels.  There  is  imme- 
diately an  increase  in  pauperism  and  crime,  and  the  very 
picturesqueness  of  the  situation  makes  a  strong  appeal  for 
charitable  relief,  usually  distributed  neither  wisely  nor  too 
liberally.  But  perhaps  it  is  no  exaggeration  to  say  that,  in 
the  final  analysis,  the  "  normal  "  amount  of  unemployment 
that  always  exists  is  productive  of  even  worse  results  in  the 
undermining  influence  it  exercises  upon  the  general  standard 
of  life  of  the  working  classes. 

Because  a  few  trades  exist  in  which  high  wages  fairly  com- 
pensate for  the  large  amount  of  unemployment  (such  as  the 
bricklayers'  trade,  for  instance),  it  is  often  assumed  that  a 
similar  compensation  usually  exists.  It  is  true  the  high  wages 
earned  during  the  busy  season  help  to  carry  the  worker's 
family  through  the  critical  period  of  unemployment;  but  it 
does  not  follow  from  this  that  unemployment  is  without  its 
damaging  effects  even  in  these  cases.  It  may  be  quite  true, 
as  Mr.  Beveridge  states  succinctly,  "  An  individual  is  not 
self-supporting  unless  his  earnings  amount  to  a  sufficiency 
for  life,  and  not  merely  to  a  sufficiency  for  the  time  of  work- 


452  SOCIAL  INSURANCE 

ing.  An  industry  is  not  self-supporting  unless  it  yields 
wages  not  only  for  the  time  of  employment,  but  also  for  the 
time  of  inevitable  unemployment  as  well;  unless  it  maintains 
all  the  men  required  by  it  both  while  they  are  in  active  serv- 
ice and  while  they  are  standing  in  reserve. ' ' 3 

But  this  is  an  expression  of  an  ethical  ideal  rather  than  of 
economic  reality  under  the  present  organization  of  industry. 
'Competitive  industry  (unless  forced  by  proper  legislation) 
does  not  determine  the  workingman's  share — wages — on  any 
such  principle. 

As  the  New  York  Commission  stated  in  its  report  on  unem- 
ployment : 4 

"  There  is  little  evidence,  except  in  highly  organized  trades,  like 
building,  to  show  that  wages  are  adjusted  in  such  a  manner  as  to 
afford  an  adequate  annual  income  to  the  wage-earner,  despite  loss  of 
time  through  unemployment.  It  would  be  an  advantage  to  the 
employer  to  retain  his  employees  in  constant  employment  throughout 
the  year  if  he  had  to  pay  them  in  the  busy  season  an  additional 
sum  to  enable  them  to  live  the  slack  months.  That  employers  do  not 
give  steady  employment  is  evidence  that  wages  are  not  adjusted  on 
any  such  basis." 

An  additional  reason  why  no  such  adjustment  is  possible 
is  because  in  no  occupation  is  the  risk  of  unemployment  either 
certain  or  definite,  and  no  adjustment  can  be  made  to  an  un- 
known factor  except  through  a  method  of  insurance.  In  his 
well-known  compilation  of  wages  in  the  United  States,  Pro- 
fessor Scott  Nearing  is  forced  to  reduce  the  average  annual 
earnings  (derived  from  weekly  wages)  by  20$  to  allow  for 
the  average  employment.  To  compensate  for  this,  unemploy- 
ment leads  to  woman  and  child  labor,  to  a  material  reduction 
of  the  standards,  to  underfeeding,  debts,  pauperism,  and  actual 
distress  to  the  point  of  starvation. 

The  variety  of  measures  proposed  compares  favorably  with 
that  of  the  causes  responsible  for  the  existence  of  the  problem. 
The  vast  majority  of  these  aim  at  prevention  rather  than 
cure,  a  condition  of  affairs  which  in  itself  is  highly  praise- 
worthy. In  social,  as  in  physical  hygiene,  prophylaxis  is  more 
important  than  therapeutics.  But  even  in  medicine,  the  sci- 

3  Unemployment,  p.  236. 

4  New   York  Commission   on  Employer's  Liability,  etc.,   3d  Report, 
t(  Unemployment  and  Lack  of  Farm  Labor,"  p.  53. 


THE  PROBLEM  OF  UNEMPLOYMENT          453 

ence  of  prophylaxis  is  far  from  having  reached  that  stage 
which  would  make  the  therapeutic  measures  unnecessary. 

From  protection  to  home  industries  through  high  customs 
duties  down  to  the  socialist  demand  for  a  co-operative  com- 
monwealth, every  economic  policy  realized  or  proposed  has 
aimed  to  prevent  unemployment. 

A  detailed  review  of  all  these  various  measures  either 
tried  or  proposed,  would  be  beyond  the  scope  of  this  study, 
devoted  primarily  to  a  definite  plan  of  relief.  But,  perhaps, 
it  is  worth  while  mentioning  them  briefly,  so  as  to  indicate 
the  necessity  for  such  organized  systems  of  relief. 

Industrial  development  has  often  been  advanced  as  the 
surest  method.  But  while  it  seems  quite  plausible  that  high 
industrial  development  must  absorb  the  surplus  of  labor,  un- 
employment, both  acute  and  chronic,  has  become  the  feature 
primarily  of  the  countries  and  age  when  industrial  develop- 
ment was  fastest,  for  industrial  development  does  not  guaran- 
tee regularity  of  activity  or  employment.  Better  regulation 
of  the  competitive  conditions  of  the  labor  market  through 
public  employment  offices  or  labor  exchanges  has  been  widely 
advocated  and  tried,  and  of  the  usefulness  of  such  institu- 
tions there  can  be  no  doubt.  Considering  that  wage-labor 
constitutes  the  only  means  of  existence  of  the  majority  of 
the  population  of  the  United  States,  for  instance,  it  is  indeed 
remarkable  how  little  has  been  done  to  improve  the  conditions 
of  selling  labor  power.  The  necessary  coming  together  of 
buyer  and  seller  is  left  entirely  to  chance,  to  individual  energy, 
or  becomes  a  matter  of  speculative  enterprise,  private  employ- 
ment offices,  and  private  advertising  agencies.  As  a  result,  the 
adjustment  is  far  from  perfect ;  the  amount  of  unemployment 
is  usually  greater  than  is  justified  by  the  existing  demand 
for  labor,  for  part  of  this  demand  remains  unknown. 

Perhaps  the  most  urgent  plea  for  such  labor  exchanges 
was  made  and  the  greatest  faith  placed  in  their  effectiveness 
by  Mr.  W.  H.  Beveridge,  whose  study  on  "  Unemployment  " 
has  been  frequently  quoted  in  this  chapter.  But  a  careful 
study  of  this  work  demonstrates  that  the  author  had  in  mind 
the  peculiar  conditions  on  London  docks,  and  his  remedy  is 
directed  against  one  specific  form  of  unemployment — casual 
labor,  which  Mr.  Beveridge  hopes  could  be  "  decasualized  " 
by  a  system  of  proper  registration  in  labor  exchanges. 


454  SOCIAL  INSURANCE 

Beyond  this  specific  remedy,  Mr.  Beveridge  proposes  a 
flexible  standard  of  wages  and  also  a  flexible  standard  of  hours 
of  labor — a  remedy  which  seems  to  tend  toward  the  same 
condition  of  casual  labor  which  elsewhere  he  attacks  so  ener- 
getically. There  is  little  doubt  that  in  certain  seasonal  trades, 
where  the  wide  fluctuations  between  unemployment  and  ex- 
treme intensity  of  activity  with  overtime,  are  caused  not 
by  climatic  conditions,  but  the  caprices  of  fashion, — such 
flexibility  of  hours  would  stimulate  a  shortening  of  a  busy 
season,  with  the  always  present  danger  of  prolonged  hours  of 
labor  during  the  busy  season. 

Another  very  popular  measure,  partly  prophylactic,  partly 
remedial,  widely  advocated  by  radicals  is  the  organization 
of  public  works.  The  remedy  has  often  been  tried  and  often 
with  very  unsatisfactory  results.  That  regular  public  em- 
ployment, as  such,  is  almost  free  from  the  danger  of  unem- 
ployment B  may  be  readily  admitted.  And  it  follows  that 
extension  of  governmental  activity  must  have  a  steady  in- 
fluence upon  the  labor  market.  But  the  organization  of 
public  works  for  the  purpose  of  relieving  the  army  of  unem- 
ployed is  a  very  much  different  matter.  There  is  no  perma- 
nent army  of  unemployed,  and  in  the  very  nature  of  things 
there  cannot  be  one,  outside  of  the  class  of  tramps  and  crim- 
inals. Irregularity  of  employment  affects  all,  or  nearly  all, 
industries,  and  public  undertakings  cannot  be  temporarily  es- 
tablished in  these  various  branches  of  industry,  to  be  closed 
down  again  when  conditions  of  employment  have  improved. 
Inevitably,  therefore,  only  such  public  works  have  been  under- 
taken which  "  could  employ  all  persons  skilled  or  unskilled/' 
which  means  the  simplest  work  of  unskilled  labor,  in  build- 
ing or  street-works,  reforestation,  or  similar  undertakings. 
Naturally,  work  performed  by  hands  unused  to  it  cannot  be 
performed  economically.  The  state  is  faced  by  the  dilemma 
either  to  pay  wretchedly  low  wages  in  accordance  with  the 
value  of  the  work  performed  or  to  pay  wages  out  of  propor- 
tion to  the  value,  which  brings  public  works  into  the  class 
of  thinly  disguised  public  charity.  At  best,  the  result  is  that 
public  work  is  performed  at  high  cost  and  performed  ineffi- 

6  The  word  "  almost "  is  used  advisedly.  Workmen  are  frequently 
laid  off  both  at  the  government  printing  office  and  at  the  various  navy 
yards  when  work  is  slack. 


THE  PKOBLEM  OF  UNEMPLOYMENT          455 

ciently  and  even  then  it  is  seldom  sufficient  to  meet  the 
demand. 

It  does  not  follow  therefrom  that  public  works  have  not 
performed  their  useful  functions  in  times  of  great  emergency. 
Under  conditions  of  sudden  and  vast  unemployment,  they 
have  proved  a  more  dignified  method  of  granting  public 
relief  to  the  needy  than  direct  private  or  public  charity  or 
poorhouses  or  workhouses.  But  their  failure  to  meet  the 
problem  of  unemployment  successfully  has  underscored  the 
necessity  of  another  method  to  meet  the  conditions  of  unem- 
ployment in  so  far  as  it  cannot  be  prevented  or,  at  any  rate, 
is  not  prevented. 

What  is  this  method  ?  While  the  source  of  income  is  for  the 
time  destroyed,  expenditure  must  go  on.  It  is  theoretically  true 
that  the  relief  of  possible  distress  due  to  unemployment  reduces 
itself  to  the  question  of  wages.  A  proper  averaging  of  wages 
over  the  entire  period  including  the  time  of  employment  and 
time  of  unemployment,  is  the  only  solution  of  the  problem. 

But  several  difficulties  arise.  First,  can  the  proper  averag- 
ing be  achieved  in  the  case  of  each  individual  workingman, 
since  the  risk  of  unemployment  does  not  distribute  itself  in 
equal  portions  among  all  workmen?  Secondly,  can  the  in- 
dividual workman  be  trusted  to  have  enough  acumen  to  make 
provision  for  the  lean  weeks?  And,  thirdly,  does  the  average 
income  make  such  average  possible  without  destroying  the 
necessary  standard,  or  in  other  words,  are  wages  high  enough 
to  furnish  the  necessary  means  to  overcome  the  results  of  un- 
employment ? 

Applying  the  general  principles  of  social  insurance  and  the 
well-known  facts  of  wages  and  cost  of  living  to  this  specific 
problem,  all  the  three  questions  must  be  answered  in  the  nega- 
tive. The  proper  solution  must,  therefore,  be  found  in  the 
following  three  conditions: 

1.  A  true  averaging  of  income  may  only  be  obtained  by 
means  of  the  insurance  method. 

2.  This  insurance  must  be  compulsory,  and, 

3.  The  industry  or  the  social  surplus  must  participate  in 
this  process  of  loss  distribution,  as  it  does  in  other  forms 
of  social  insurance. 

The  answer,  therefore,  is,  briefly — Compulsory,  Subsidized 
Unemployment  Insurance. 


CHAPTER  XXVIl 
SUBSIDIZED  UNEMPLOYMENT  INSURANCE 

GRANTED  that  unemployment  insurance  is  necessary — is  it 
possible?  For  many  years  this  question  was  asked  by  most 
authoritative  students  of  the  subject,  and  the  answer  was  not 
always  favorable ;  various  experiments  were  made  by  munici- 
palities and  voluntary  organizations  in  different  countries, 
and  some  of  them  suffered  a  dismal  failure.  The  very  fact 
of  this  prolonged  discussion  through  almost  two  decades, 
and  of  the  timidity  in  making  experiments,  in  the  face  of  the 
rapid  development  of  other  forms  of  social  insurance,  is  evi- 
dence that  there  are  special  difficulties  in  the  path  of  unem- 
ployment insurance  which  are  not  met  with  in  the  case  of 
accidents  or  disease. 

What  do  these  difficulties  consist  of?  It  is  the  theory  of 
insurance  science  that  any  risk  may  be  insured,  provided  there 
is  any  regularity  at  all  about  its  occurrence.  Unemployment 
is  a  risk.  It  demonstrates  a  fair  degree  of  regularity  both  in 
its  dependence  upon  trade  and  in  its  time  fluctuations,  whether 
in  annual  or  longer  cycles. 

When  the  whole  problem  was  investigated  very  thoroughly 
by  the  Imperial  Statistical  Office  of  Germany,  in  1906,  the 
conclusion  arrived  at  was  that  there  were  no  insurmountable 
technical  obstacles  to  the  development  of  an  unemployment 
insurance  system.  The  real  difficulty  was  stated  to  be  the 
absence  of  a  simple  test  of  unemployment.  With  compara- 
tively few  exceptions,  the  presence  or  absence  of  an  accidental 
injury  may  be  easily  determined.  It  is  an  objective  occur- 
rence to  be  verified  by  statements  of  witnesses  and  the  results 
may  be  controlled  by  expert  medical  supervision.  The  same, 
though  perhaps  in  a  somewhat  lesser  degree,  is  true  of  sick- 
ness. Malingering  and  exaggeration  of  subjective  symptoms 
may  occur,  but  it  must  be  the  exception  rather  than  the  rule. 

But  the  fact  of  unemployment  or,  rather,  lack  of  employ- 
ment, the  impossibility  of  finding  employment,  lacks  that  con- 

456 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     457 

elusive  evidence.  It  often  is  and  still  oftener  may  be  claimed 
to  be  the  result  of  the  individual's  efforts  or  absence  of  them. 
It  may  be  easily  simulated. 

Furthermore,  unemployment  insurance  tends  to  result  in 
an  unfavorable  selection  of  risks  against  the  insuring  institu- 
tion. After  the  average  risk  is  determined,  it  is  the  usual 
practice  of  every  insuring  company  to  exercise  strict  super- 
vision over  the  selection  of  risks,  accepting  such  individuals 
(or  property)  as  are  a  better  risk  than  usual,  and  rejecting 
those  that  are  a  worse  than  ordinary  risk.  In  this  way  insur- 
ance is  made  safe  and  also  profitable.  The  risk  of  unemploy- 
ment is,  to  a  large  extent,  dependent  upon  personal  factors. 
The  insurance  institution  may  eliminate  such  trades  as  have 
an  excessive  unemployment  risk,  but  it  is  difficult  to  eliminate 
the  individual  with  an  abnormally  high  unemployment  risk. 

Finally,  it  is  argued  that  any  system  of  unemployment  in- 
surance faces  a  serious  difficulty  when  confronted  with  the 
conflict  of  capital  and  labor.  A  certain  amount  of  unemploy- 
ment is  voluntary  for  legitimate  reasons — that  unemployment, 
either  individual  or  collective  (strikes),  which  results  from 
bargaining  over  the  wage-contract.  It  is  not  always  easy  to 
differentiate  this  form  of  unemployment  from  others.  If 
unemployment  insurance  is  extended  over  this  form,  it  must 
meet  with  tremendous  opposition  from  the  employing  class; 
if  it  is  excluded,  the  opposition  is  equally  strong  on  the  side 
of  the  wage-workers. 

These  and  similar  difficulties  are  quite  real.  But  the  fact 
that,  notwithstanding  them,  at  least  one  form  of  insurance — 
that  of  the  voluntary  co-operative  kind  through  workingmen  's 
own  organizations — namely,  labor  unions — not  only  proved 
feasible  and  successful,  but  developed  very  rapidly  during  the 
last  twenty-five  years — is  evidence  that  these  conditions  are 
merely  difficulties  to  be  overcome  by  suitable  organization 
rather  than  obstacles  which  would  close  the  path. 

Out-of-woik  benefits  have  always  been  a  natural  function 
of  labor  organizations.  Even  if  the  entire  benefit  activity 
of  trade  unions  be  considered  an  adventitious,  supplementary 
feature  of  an  organization  whose  main  purpose  is  improve- 
ment of  the  conditions  of  the  labor  contract,  out-of-work 
benefits  are  an  exception  because  they  are  necessary  to  pre- 
serve the  very  life  of  a  trade  union.  For  a  unionist  out 


458  SOCIAL  INSURANCE 

of  work  may  weaken  in  his  union  principles  and  prove  dan- 
gerous to  the  organization. 

Its  development  has  been  greatest  where  the  trade  unions 
are  strongest,  in  Great  Britain  and  Germany.  In  Great 
Britain,  the  one  hundred  principal  trade  unions  in  ten  years 
(1898-1907)  distributed  nearly  $20,000,000  in  unemployment 
benefits  out  of  a  total  budget  of  over  $86,000,000,  or  22.8#. 
Both  the  actual  amount  paid  out  and  the  proportion  of  total 
expenditures  devoted  to  this  subject  has  rapidly  increased. 
In  1904  it  exceeded  $3,000,000.  Yet  the  membership  pro- 
tected by  these  benefits  was  less  than  1,500,000  out  of  a  total 
union  membership  of  2,500,000,  and  a  total  wage-working 
population  of  nearly  15,000,000. 

The  building  trades,  and  the  metal,  engineering,  and  ship- 
building trades  were  best  protected;  in  fact,  they  distributed 
over  two-thirds  of  the  total  unemployment  benefits. 

In  Germany,  notwithstanding  the  comparative  youth  of 
the  trade-union  movement,  the  extent  of  this  activity  is  equally 
wide.  Out  of  a  total  union  budget  of  some  $10,000,000,  nearly 
$2,000,000  was  spent  for  unemployment  benefits,  and  an  addi- 
tional $300,000  for  travel  benefits.  Some  2,000,000  workers 
were  protected  against  this  risk  by  co-operative  insurance. 

In  comparison  with  the  amount  of  unemployment  benefits 
given  by  the  British  and  German  unions,  the  activity  of  the 
American  unions  in  that  direction  is  but  slight.  It  is  re- 
ported that  in  1910  all  the  national  unions  affiliated  with  the 
American  Federation  of  Labor  distributed  in  unemployment 
benefits  no  more  than  $240,717.  In  1909,  in  face  of  the 
serious  industrial  depression,  the  total  amount  was  larger, 
$535,995. 

In  other  words,  unemployment  insurance  has  been  realized 
by  these  labor  organizations  in  face  of  all  the  enumerated 
difficulties.  The  important  question  arises,  why  did  not  these 
difficulties  interfere  in  any  way,  or  at  least  in  any  material 
way,  with  its  growth?  The  answer  is  extremely  simple  if  the 
nature  of  these  difficulties  is  again  considered,  for  scarcely 
any  of  them  apply  to  the  conditions  under  which  labor  unions 
grant  their  out-of-work  benefits. 

The  "  moral  hazard  "  of  malingery  is  naturally -reduced  to 
a  minimum.  A  trade  union  knows  the  conditions  of  its  par- 
ticular labor  market  as  no  one  else  can  know  them  Often  it 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     459 

takes  an  active  part  in  placing  the  unemployed ;  it  also  knows 
the  conditions  of  employment  so  as  to  be  able  to  see  the  dif- 
ference between  a  reasonable  and  an  unreasonable  offer.  It  is 
almost  impossible  for  a  refusal  of  a  reasonable  offer  to  remain 
a  secret.  And  as  to  an  offer  to  work  for  sub-standard  wages, 
it  is  the  direct  policy  of  a  trade  union  to  prefer  the  payment 
of  an  out-of-work  benefit  to  a  permission  to  accept  such  em- 
ployment. 

Not  only  these  broad  difficulties  but  even  the  technical  ones 
also  vanish.  There  can  be  no  unfavorable  selection  of  a  few 
trades  because  each  union  organizes  its  unemployment  benefit 
system  within  the  limits  of  one  well-defined  trade  or  a  group 
of  closely  related  ones,  where  the  risk  of  unemployment  is 
fairly  uniform.  Nor  can  there  be  a  personal  selection  of  bad 
risks  because,  though  voluntary  from  the  point  of  view  of 
general  law,  these  out-of-work  benefit  systems  are  usually  com- 
pulsory within  the  limits  of  the  trade  organization.  Thus, 
the  financial  strength  of  the  benefit  fund  is  not  undermined 
by  only  poor  risks  assuming  insurance. 

But  while  this  form  of  insurance  against  unemployment  has 
been  successful  not  only  within  the  limits  of  its  activity  but 
also  as  a  demonstration  of  the  possibility  of  avoiding  all  diffi- 
culties, its  narrow  limitations  must  not  be  overlooked. 

Its  effect  is  strictly  limited  to  trade  union  organizations. 
Rapid  as  was  the  growth  of  these  organizations,  after  all  the 
vast  majority  of  wage-workers  is  still  outside  of  them,  and  in 
some  countries  they  are  quite  feeble.  Now,  the  necessity  for 
unemployment  insurance  is  vastly  greater  for  those  outside 
of  the  trade  unions  than  inside  of  them. 

Whether  or  not  organization  of  labor  has  any  benevolent 
effect  upon  the  extent  of  unemployment,  there  can  be  little 
doubt  that  it  has  raised  the  average  earnings  of  its  member- 
ship. Union  workmen  as  a  rule  do  not  suffer  so  much  from 
distress  in  case  of  unemployment  as  do  non-organized  trades. 
Moreover,  it  is  well  to  remember  that  almost  the  entire  army 
of  casual  laborers  is  ouside  the  pale  of  unionism,  receives  the 
lowest  wages,  and  suffers  from  the  greatest  amount  of  unem- 
ployment. Briefly,  the  same  situation  develops  as  in  the  other 
forms  of  co-operative  workmen's  insurance.  Those  most  in 
need  of  it  do  not  enjoy  it. 

Moreover   the   wage-workers   themselves    have    the   entire 


460  SOCIAL  INSURANCE 

cost  of  this  insurance  to  bear.  Union  or  no  union,  a  very 
large  proportion  of  the  wage-workers  are  not  in  a  condition 
to  assume  this  burden.  And  even  those  who  are  better  placed, 
are  forced  to  make  the  level  of  benefits  very  low  in  order  to 
keep  the  dues  or  premiums  down. 

As  a  result,  these  out-of-work  benefits  are  usually  very 
moderate  in  amount.  While  a  good  many  unions  do  not  dare 
to  grant  any  at  all,  others  are  able  to  grant  them  for  a  very 
short  time  only.  In  England,  the  usual  rates  are  10s.  and  12s. 
per  week,  which  may  be  drawn  for  about  twenty  weeks,  so 
that  the  average  amount  of  unemployment  benefits  possible 
within  one  year  may  be  estimated  at  $50  or  $60. 

In  Germany,  a  benefit  from  1  to  1  1-2  Marks  (24  to  36 
cents)  is  usual,  while  the  duration  may  extend  from  ten  weeks 
in  some  unions  to  forty  in  others.  In  Belgium,  where  unem- 
ployment benefits  among  union  men  are  perhaps  more  com- 
mon than  in  any  other  country,  the  average  benefits  (before 
the  establishment  of  the  Ghent  system,  which  will  be  described 
presently)  varied  from  50  centimes  (10  cents)  to  2  1-2  francs 
(50  cents)  per  day,  or  60  cents — $3  per  week;  benefits  over 
1  1-2  francs  per  day,  or  90  cents  per  week,  being  exceptional. 
The  same  rate,  1-2  to  1  1-2  francs,  predominates  in  Italy. 
The  observation  which  Mr.  Beveridge  makes  of  the  English 
out-of-work  benefits,  "  the  allowance  is  never  by  itself  ade- 
quate for  the  maintenance  of  a  family,"  is  equally  true  of 
these  benefits  in  other  countries  as  well. 

The  persistence  of  these  efforts  proves  insurance  to  be 
necessary  and  the  fair  degree  of  success  proves  it  to  be, 
under  certain  conditions,  feasible.  But  the  final  possibilities 
are  found  to  be  limited  and  the  cost  a  heavy  burden,  unless 
shared  by  other  groups  of  the  social  body.  Thus,  the  way  is 
clearly  indicated  towards  a  carefully  planned  structure  of 
social  insurance  against  unemployment. 

There  have  been  many  classifications  of  the  various  social 
systems  of  unemployment  insurance,  but  perhaps  it  is  best 
for  the  purpose  of  uniformity  to  adopt  here  the  classification 
used  for  all  other  branches  of  social  insurance,  so  as  to  under- 
score the  absence  of  any  fundamental  difference  between  this 
and  all  other  branches.  The  development  from  voluntary 
mutual  to  voluntary  subsidized  state  insurance,  and  from 
that  to  compulsory  subsidized  state  insurance,  has  been  traced 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     461 

in  sickness,  old-age,  and  invalidity  insurance,  and  the  same 
process  may  be  noticed  in  the  field  of  unemployment. 

The  many  experiments,  the  failures,  and  the  successes  as 
well,  were  almost  all  made  in  voluntary  subsidized  insurance. 
The  fact  that  instead  of  the  state,  in  many  instances,  the  local 
governmental  authority,  the  department  or  province  or  even 
commune  has  undertaken  the  organization  and  granted  the  sub- 
sidy, is,  after  all,  a  detail  of  minor  importance. 

Somewhat  crudely,  all  these  schemes  of  subsidized  voluntary 
insurance  provided  for  by  public  or  governmental  authority 
may  be  divided  into  groups,  which  Mr.  J.  G.  Gibbon  has 
named:  (1)  Provided  Voluntary  Insurance  and  (2)  Auton- 
omous Insurance. 

The  difference  between  these  two  forms  of  organization  is 
essential.  Under  the  ' '  provided  ' '  form,  the  public  authority, 
usually  a  municipality  (although  in  a  few  cases  only  a  semi- 
public  body,  perhaps  of  a  charitable  nature),  organizes  the 
insurance  institution  and  offers  to  extend  its  benefits,  includ- 
ing a  financial  subsidy,  to  the  individual  workman.  The 
' '  autonomous  ' '  form  proceeds  on  an  entirely  different  plan — 
it  accepts  the  form  of  insurance  organization  created  by  the 
workmen  themselves  and  only  comes  to  their  assistance,  thus 
following  the  familiar  lines  of  voluntary  subsidized  sickness 
insurance  or  old-age  insurance  in  the  Scandinavian  and  other 
countries.  Of  these  two  forms,  whose  designation  is  suffi- 
ciently characteristic,  the  latter,  the  autonomous  form — is 
the  more  recent  and  by  far  the  more  successful.  It  is  un- 
doubtedly the  activity  of  the  "  provided  "  form,  organized 
in  the  nineties  of  last  century,  which  is  responsible  for  the 
pessimism  as  to  possibilities  of  unemployment  insurance  so 
current  ten  or  fifteen  years  ago. 

Altogether,  only  a  few  experiments  in  that  line  were  made. 
The  earliest  was  that  in  the  city  of  Berne,  Switzerland,  in 
1893.  In  1896,  Cologne,  Germany,  established  a  fund,  still 
existing,  and  in  the  same  year  a  private  organization  in 
Bologna  made  a  similar  effort.  Other  funds  are  found  in 
Leipsic  (since  1905),  in  Venice  (since  1901),  in  Basle  (1901), 
and  Geneva  (1904). 

The  organization  of  these  insurance  funds  is  very  primitive. 
All  workers  without  distinction  are  usually  permitted  to 
join  on  the  same  terms.  As  a  result,  all  the  difficulties  men- 


462  SOCIAL  INSURANCE 

tioned  in  connection  with  the  general  problem  of  unemploy- 
ment insurance  come  very  strongly  into  play.  There  is  selec- 
tion of  "  bad  risks  "  both  individually  and  by  trades.  In  all 
the  schemes  mentioned,  the  building  trades  predominated 
among  the  insured,  sometimes  up  to  80$  or  90$. 

Naturally,  the  trades  less  subject  to  unemployment  avoid 
this  form  of  insurance.  Even  among  the  building  trades, 
the  better  element  is  antagonistic  to  the  organization. 

A  very  high  proportion  of  those  insured  is  forced  to  apply 
for  the  benefits — even  in  Cologne  from  80$  to  85$  in  six 
years  out  of  twelve.  The  insurance  principle  is  practically 
obscured.  The  scheme  becomes  simply  a  method  of  taking 
out  more  money  than  was  put  in.  This  serves  as  an  additional 
attraction  to  the  both  economically  and  morally  weakest  ele- 
ments of  the  working  class,  and  not  only  repels  the  stronger 
but  becomes  soon  a  source  of  danger  to  the  fund  itself.  The 
subsidies,  usually  derived  from  two  sources,  a  contribution 
from  the  municipal  treasury  or  voluntary  subscriptions  of 
"  honorary  members/'  or  other  charitable  individuals  or 
institutions  (and,  as  a  matter  of  fact,  rather  slight  in  all  the 
localities  enumerated),  become  exhausted  or  threaten  to  be  so; 
and  to  preserve  even  a  semblance  of  the  insurance  principle, 
the  management  of  the  funds  usually  feels  itself  constrained 
to  apply  various  restrictive  measures  to  reduce  the  excessive 
demand  for  benefits.  Various  regulations  of  this  kind  exist. 
Certain  trades  may  be  altogether  excluded  because  the  unem- 
ployment risk  is  too  great.  A  residence  qualification  is  estab- 
lished to  prevent  migration  for  the  purpose  of  receiving  the 
benefits.  A  certain  length  of  membership  is  required  with 
regular  payment  of  dues,  as  a  means  of  eliminating  the 
malingerer.  And  while  these  measures  strengthen  the  finances 
of  the  scheme,  they  really  reduce  its  usefulness. 

Briefly,  the  situation  is  that  good  risks  avoid  these  schemes 
and  the  worst  are  not  admitted.  As  a  result  the  sphere  of 
application  of  all  of  them  is  a  very  limited  one.  In  Cologne, 
which  has  nearly  the  very  oldest  and  the  most  important  of 
these  systems,  the  total  number  of  insured  is  under  2,000. 
The  Berne  unemployment  fund  insures  only  about  500.  The 
Basle  fund,  after  ten  years,  boasted  of  a  little  over  200  mem- 
bers insured. 

In  so  large  a  city  as  Leipsic,  the  unemployment  insurance 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     463 

fund,  organized  by  some  private  agencies  in  co-operation  with 
certain  trade  unions,  has  attracted  two  hundred  and  twenty- 
seven  members  in  the  fourth  year.  The  total  number  of  in- 
sured in  all  the  schemes  of  this  type  is,  therefore,  less  than  five 
thousand. 

The  truth  of  the  situation  is  that  these  funds  have  be- 
come but  modified  forms  of  public  relief  for  a  few  unemployed, 
the  right  to  relief  being  predicated  upon  certain  contributions. 
This  public  relief  is  combined  with  the  granting  of  such  em- 
ployment as  cleaning  the  streets.  Charitable  funds,  either 
voluntarily  contributed  by  individuals  or  by  municipalities, 
are  an  essential  feature  of  them.  These  voluntary  contribu- 
tions seldom  last,  are  never  sufficient,  and  the  maximum 
activity  depends  upon  success  in  obtaining  funds. 

Some  of  these  funds  have  done  a  certain  amount  of  useful 
work  in  relieving  unemployment  distress  and  in  finding  em- 
ployment for  the  idle  during  the  winter  months.  But  as  a 
possible  nucleus  for  a  general  scheme  of  unemployment  in- 
surance, they  have  failed,  and  perhaps  that  is  their  most 
important  achievement — that  they  have  clearly  established  the 
impossibility  of  individual,  voluntary  unemployment  insur- 
ance. 

Vastly  more  successful  has  been  the  system  of  unemploy- 
ment insurance  which  is  usually  known  as  the  Ghent  System, 
because  the  earliest  successful  experiments  were  made  in 
the  Belgian  city  of  Ghent  in  1900,  under  the  direction  of 
Mr.  Louis  Varlez,  a  very  close  student  of  the  unemployment 
problem. 

The  principle  underlying  the  now  famous  Ghent  system  is 
very  simple.  It  was  quite  evident,  even  ten  to  twelve  years 
ago,  that  while  the  few  municipalities  which  tried  it  failed  to 
evolve  a  practical  system  of  unemployment  insurance,  labor 
unions  were  carrying  on  a  considerable  amount  of  that  insur- 
ance without  any  particular  difficulties  except  that  certain 
unions  felt  that  they  could  not  afford  it.  Instead  of  trying 
to  build  up  a  new  system  of  unemployment  funds,  it  seemed 
much  simpler,  and  much  more  advisable,  to  direct  the  efforts 
toward  developing  a  system  which  the  workman  had  created 
himself  and  which  proved  entirely  successful  within  its  limits. 
The  main  shortcomings  of  trade  union  insurance  were,  on  one 
hand,  the  small  benefits  and  the  heavy  burden  upon  the  work- 


464  SOCIAL  INSURANCE 

ers'  pockets,  and  on  the  other,  the  fact  that  many  unions 
were  evidently  unable  to  organize  such  systems  with  the  funds 
at  their  disposal. 

The  essential  thought  of  the  Ghent  system  is,  therefore, 
its  public  (municipal)  subsidy  to  labor  organizations  granting 
out-of-work  benefits.  The  purpose  is  to  increase  the  amount 
of  the  benefits  given  without  any  additional  cost  to  the  wage- 
worker  and  to  stimulate  other  unions  to  organize  such  systems. 
With  this  purpose  in  view,  a  certain  appropriation  is  made 
by  the  municipality  of  Ghent  together  with  its  suburbs.  From 
that  appropriation  subsidies  are  granted  to  all  organizations 
giving  unemployment  benefits,  in  a  certain  proportion  to  those 
benefits,  which  must  be  determined  periodically  in  depend- 
ence upon  the  funds  at  disposal,  the  general  level  of  unem- 
ployment and  so  forth.  This  proportion  has  usually  been 
60$  of  the  original  benefit,  so  that  the  unemployed  received 
60$  more  than  he  otherwise  would  have  been  entitled  to.  Those 
to  whom  the  principle  of  self-help  is  a  sanctity,  may  claim  that 
the  underlying  principle  of  this  system  is  that  of  "  helping 
self-help.7'  This  is  only  true,  however,  if  the  term  "  self- 
help  "  is  made  broad  enough  to  include  "  collective  mutual 
help."  For  the  decision  of  a  trade  union  to  organize  a  sys- 
tem of  unemployment  insurance  is  rather  a  triumph  of  the 
principle  of  collective  mutual  help  over  the  hope  in  the 
efficacy  of  "  self-help." 

The  details  of  this  scheme  are  somewhat  more  complex  and 
cannot  be  gone  into  here  at  great  length.  There  are  various 
limitations.  The  limit  of  the  subsidy  cannot  exceed  100$  of 
the  benefit  originally  given.  The  subsidy  is  computed  only 
on  the  first  daily  franc  of  the  benefit.  It  is  not  given  for 
more  than  sixty  days  in  any  one  year  to  one  unemployed. 
These  conditions  and  limitations  under  no  circumstances  inter- 
fere with  the  right  of  the  trade  union  to  organize  its  own 
scale  and  conditions  of  unemployment  benefits.  They  apply  to 
the  benefit  and  not  to  the  subsidy.  The  Ghent  system  has 
admittedly  had  a  marked  degree  of  success.  From  28  the 
number  of  affiliated  trade  unions  has  increased  to  43  within 
nine  or  ten  years,  the  number  of  insured  from  13,000  to  18,500, 
and  in  eight  years  some  650,000  francs  were  distributed  in 
unemployment  benefits  for  some  375,000  days  of  unemploy- 
ment. Of  the  total  amount  about  220,000  francs  were  con- 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     465 

tributed  as  a  subsidy.  Thus,  the  experience  of  this  one  town 
of  some  200,000  population  has  been  really  greater  than  that 
of  half  a  dozen  of  the  purely  municipal  funds,  such  as 
Cologne,  combined. 

The  Ghent  system,  with  various  more  or  less  important 
modifications,  has  found  its  imitators  in  many  communities 
throughout  Europe.  Not  only  municipalities  but  various 
departments  or  communes,  and  finally  states,  have  made  appro- 
priations for  subsidizing  either  trade  union  unemployment 
funds,  or  similar  voluntary  schemes  of  unemployment  insur- 
ance. Perhaps  the  extent  of  this  growth  within  one  decade 
can  best  be  presented  in  a  somewhat  tabular  statement  adopted, 
with  modifications,  from  J.  G.  Gibbon's  Unemployment  In- 
surance : 

(a)  MUNICIPALITIES 

1.  Belgium.     All  cities  of  over  35,000  population,  and  several 
smaller  cities,  altogether  twenty-one  funds  with  forty-one  communi- 
ties participating. 

2.  France.    A  large  number  of  municipalities,  Paris,  Lyons,  Limo- 
ges, Roubaix,  etc. 

3.  Germany.     Several   cities,   such   as   Strassburg    (since  1906), 
Erlangen  (1909),  Miilhausen  (1909),  Freiburg  (1910),  Heidelberg, 
Nuremberg   (1911).     It  is  planned  in  Berlin,  Hamburg,  Miinchen, 
and  other  cities. 

4.  Holland.    About  twenty-five  cities  and  towns  altogether,  includ- 
ing Amsterdam,  Arnhem,  and  Utrecht  (since  1906),  one  since  1907, 
eleven  since  1908,  eight  since  1909,  one  since  1910,  and  one  since  1911. 

5.  Italy.     Three  cities,  Milan  since  1905,  through  a  privately  en- 
dowed philanthropic  fund,  Padua  and  Brescia  since  1909  or  1910, 
directly   (this  does  not  include  Bologna  and  Venice,  where  direct 
systems  of  insurance  exist). 

6.  Switzerland.     The  country  of  the  early  and  unsuccessful  at- 
tempts at  direct  and  even  compulsory  insurance,  has  also  been  in- 
fluenced to  adopt  the  Ghent  scheme.    St.  Gall  since  1905,  and  Geneva 
since  1909,  and  a  few  other  small  towns. 

(&)  LARGER  CIVIL  DIVISIONS 

Provinces,  departments,  etc.  Small  subsidies,  often  in  addition 
to  the  subsidy  of  the  local  community,  are  given  by  these  political 
divisions  in  Belgium  and  France. 

(c)  STATE  GOVERNMENTS 

1.  Belgium  since  1907  distributes  a  small  subsidy  to  some  of  the 
communal  unemployment  funds,  or  trade  associations  granting  un- 


466  SOCIAL  INSURANCE 

employment  benefit,  whether  affiliated  or  not  with  the  communal  fund. 

2.  France  similarly  distributes  in  subsidies  to  unemployment  in- 
surance associations  a  sum  appropriated,  which  amounts  to  some 
$22,000  annually  since  1905. 

3.  A  truly  national  system  of  subsidized  unemployment  insurance 
was  passed  in  Norway  in  1905  (4)  and  similarly  in  Denmark  in  1907. 

The  list  is  comprehensive  enough  to  indicate  the  rapid  exten- 
sion of  the  Ghent  system  or  its  various  modifications.  Natu- 
rally, with  such  a  large  number  of  systems  independent  of 
each  other,  a  very  great  variety  of  detail  in  methods  may  be 
observed,  upon  which  the  efficiency  of  the  system  often  de- 
pends. 

The  differences  in  the  method  of  organization  between 
municipal  and  national  systems  were  already  indicated.  That 
the  national  systems  have  the  preference  seems  to  be  quite 
evident,  if  only  because  they  are  much  more  effective  in  ex- 
tending the  benefits  of  unemployment  insurance  and  not  in- 
terfering with  the  mobility  of  labor.  Thus  the  Danish  and 
Norwegian  systems  seem  from  the  point  of  numbers  to  be 
the  most  perfect.  Considering  the  population  of  these  two 
small  countries,  it  is  certainly  significant  that  Norway  has 
about  50,000  persons  insured  against  unemployment,  and 
Denmark  an  even  100,000. 

To  whom  shall  the  subsidy  be  paid?  That  is  one  of  the 
essential  problems  of  organization  in  most  of  these  funds. 
Most  of  these  organizations — in  fact,  practically  all  of  them 
in  all  countries — are  trade  unions.  But  no  law  or  system  re- 
quires them  to  be-  such.  In  fact,  in  some  countries,  it  is  very 
definitely  provided  that  the  subsidized  association  shall  not 
be  a  trade  union,  but  an  organization  expressly  formed  for 
the  purpose  of  unemployment  insurance.  In  actual  practice 
this  requirement  has  simply  resulted  in  subsidiary  formal 
organizations  of  the  same  membership  as  the  trade  union. 
That  is  the  situation  in  Denmark,  and  in  Norway  the  law 
requires  that  if  a  trade  union  possesses  an  unemployment 
benefit  fund,  its  accounts  should  be  kept  entirely  distinct, 
and  the  fund  should  possess  a  legal  identity  of  its  own. 

There  are  several  reasons  for  this  requirement.  The  modern 
state  had  no  desire  to  openly  come  out  as  a  partisan  of 
trade  unions,  or  to  permit  the  use  of  any  part  of  its  subsidy 
for  other  purposes  than  unemployment  benefits.  Furthermore, 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     467 

it  did  not  want  to  discriminate  against  the  non-union  man, 
and  wanted  to  leave  open  for  him  a  way  to  the  subsidy.  More- 
over, in  granting  the  subsidy,  the  state  wants  to  exercise 
control  of  the  unemployment  benefit  fund  without  interfering 
with  the  trade  union  as  such.  In  both  these  countries,  the 
law  requires,  as  a  condition  of  the  subsidy,  that  membership 
in  the  fund  be  open  to  any  one,  whether  a  member  of  the 
trade  union  or  not.  This  provision  was  very  distasteful  to 
the  unions  and  delayed  the  acceptance  of  the  subsidy, 
especially  in  Norway;  but,  gradually,  the  opposition  was 
overcome,  because  its  actual  effect  was  felt  to  be  very 
weak. 

Other  regulations  as  to  the  organizations  entitled  to  sub- 
sidy, or  individuals  entitled  to  membership  in  such  organiza- 
tions, are  few.  The  natural  tendencies  of  the  workingmen's 
organizations  are  permitted  to  work  themselves  out.  In  some 
of  the  systems  enumerated,  it  is  required  that  the  organiza- 
tion be  limited  to  one  trade  or  allied  trades,  this  uniformity 
of  occupation  being  necessary  to  insure  some  uniformity 
of  risk.  Most  of  the  municipal  systems  leave  the  actual 
determination  of  the  amount  of  benefits  payable  to  the  volun- 
tary organizations,  though  they  may  pay  their  subsidy  only 
up  to  a  certain  amount  of  the  benefit.  On  the  other  hand, 
definite  limits  are  met  with.  Under  the  Strassburg  system,  for 
instance,  the  benefit  originally  paid  by  the  trade  union  must 
not  be  over  1  Mark  (24  cents)  ;  the  Norwegian  law  puts  it 
at  one-half  of  the  wages,  and  the  Danish  law  places  the  limits 
at  from  1-2  to  2  Kroner  (13  cents  to  54  cents).  There  is  in 
most  of  these  limits  some  conception  of  the  rock-bottom 
standard  of  physical  necessities  of  existence. 

The  variety  of  provisions  is  not  smaller  in  the  manner  and 
proportion  of  the  subsidies  granted.  Under  the  Ghent  system 
the  subsidy  is  given  ex  post  facto  in  proportion  to  the  benefits. 
While  the  subsidy  is  given  at  the  same  time  with  the  basic 
benefit,  the  amount  is  reimbursed  to  the  organization  after  a 
subsequent  accounting.  This  is  the  predominating  method 
in  other  Belgian  communities,  in  the  Milan  fund,  in  most 
Dutch  systems,  in  the  national  system  of  Norway.  The  sys- 
tem of  Denmark  is  the  most  notable  exception  to  this  rule, 
the  subsidy  being  paid  according  to  the  premium  rather  than 
the  benefit.  The  Ghent  method  is  usually  considered  prefer- 


468  SOCIAL  INSURANCE 

able,  in  that  it  encourages  the  payment  of  benefits  rather  than 
accumulation  of  funds,  prevents  the  waste  of  subsidy  in  ad- 
ministrative expenses,  and  requires  less  interference  with  the 
management  of  the  funds  by  the  association. 

The  amount  of  the  subsidy  must  be  substantial  if  the  re- 
sults aimed  at — effective  increase  of  the  benefits  and  strong 
stimulus  to  the  development  of  mutual  insurance — are  to  be 
realized.  In  the  Ghent  organization  60$  of  the  basic  benefits 
were  usually  given.  Under  the  Danish  law  one-third  of  the 
premium  is  contributed  out  of  the  national  treasury,  and  the 
local  authorities  are  permitted  to  contribute  another  sixth, 
so  that  altogether  one-half  of  the  premium  is  contributed,  con- 
stituting a  subsidy  of  100$.  The  Norwegian  system  provides 
for  a  subsidy  of  25$  of  the  total  benefits  paid,  or  33  1-3$ 
of  the  basic  benefit.  In  most  of  the  cities  of  Holland  the 
subsidy  is  100$.  In  the  city  of  Strassburg  it  is  50$ ;  the  same 
amount  is  paid  by  the  Humanitarian  Society,  which  conducts 
the  system  in  Milan.  To  be  sure,  the  actual  rate  of  the 
subsidy  is  often  smaller  than  that  stated  in  the  rules  because 
many  other  regulations  exist  restricting  the  subsidy,  often 
according  to  the  length  of  residence,  or  excluding  the  earliest 
stage  of  unemployment,  or  limiting  the  duration  of  the  sub- 
sidy. In  other  words,  the  subsidy  system  may  have  its  own 
regulations  as  to  subsidy,  without  necessarily  enforcing  them 
upon  the  voluntary  organization. 

As  a  matter  of  fact,  the  activity  in  granting  out-of-work 
benefits,  and  consequently  the  subsidy  as  well,  is  limited 
to  trade  unions.  Thus,  the  benefits  of  all  these  systems  are 
limited  to  organized  labor.  The  granting  of  the  unemploy- 
ment subsidy  may  have  had  the  effect  of  attracting  to  the 
trade  unions  a  certain  proportion  of  the  wage-workers'  class, 
who,  otherwise,  would  not  have  joined  them,  but  with  all  that, 
a  larger  part  of  the  workingmen  in  most  of  the  countries 
still  remain  outside  of  these  organizations,  and  to  them  the 
system  of  subsidies  to  voluntary  organizations  offers  little  or 
nothing. 

In  order  to  meet  the  demand  of  this  larger  part  of  the 
working  class,  a  modified  system  of  subsidies  to  savings  was 
devised.  This  consists  in  granting  subsidies  in  the  same 
amounts  as  to  the  associations,  to  withdrawals  from  the  private 
savings-bank  accounts  when  such  withdrawals  are  made  be- 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     469 

cause  of  unemployment.  During  the  first  three  years  such 
subsidies  to  private  savings  were  made  only  when  the  deposits 
were  made  for  the  special  emergency  of  unemployment,  and 
thus  constituted  a  modified  form  of  insurance.  This  was 
not  altogether  a  new  principle,  for  the  identical  form  of  unem- 
ployment insurance  had  been  practised  in  the  city  of  Bologna, 
Italy,  by  the  local  savings  bank  since  1896.  In  1904,  the 
scheme,  in  view  of  its  failure  to  become  popular,  was  made 
more  liberal,  by  granting  the  same  subsidy  to  withdrawals 
from  any  savings-bank  account,  provided  the  withdrawal  was 
made  because  of  unemployment. 

This  provision  for  unemployment  of  individuals  not  mem- 
bers of  any  unemployment  benefit  association,  is  found  only  in 
a  few  of  the  schemes  described.  In  almost  all  the  Belgian 
municipal  funds,  the  principles  of  the  Ghent  system  were 
followed,  including  this  method  of  subsidizing  individual  sav- 
ings. But  outside  of  these,  only  a  few  municipalities  have 
adopted  this  subsidiary  system.  It  does  not  exist  in  either  one 
of  the  two  important  national  systems  of  Denmark  or  Norway, 
nor  in  the  more  limited  system  of  France.  The  systems  of 
Milan  and  other  Italian  cities,  of  all  the  cities  of  Holland, 
of  the  city  of  Luxemburg,  and  of  most  German  cities,  are 
strictly  limited  to  subsidy  of  organizations,  often  only  to 
trade  unions. 

To  be  sure,  the  question  of  existence  or  absence  of  this 
subsidiary  system  of  assistance  to  individual  earnings  is  rather 
an  academic  one,  not  because  the  interests  of  non-union  labor 
are  of  no  importance,  but  because  even  when  the  system  exists, 
it  has  proven  just  as  much  of  a  failure  as  the  essential  feature 
of  the  Ghent  system  has  been  successful.  Taking  all  the  Bel- 
gian systems  combined,  about  150  or  200  persons  have  availed 
themselves  of  this  system,  with  a  total  subsidy  of  about  2,500 
francs,  as  against  17,000  to  20,000  persons  subsidized  through 
the  trade  organization  part  of  the  scheme. 

Thus,  the  Ghent  system,  as  well  as  its  imitators  and  modi- 
fications, is  practically  limited  to  organized  labor.  It  is  true 
that  in  a  few  cities,  as,  for  instance,  Eoubaix  (France),  Basle 
(Switzerland),  Nuremberg  (Germany),  Dordrecht  (Holland), 
and  a  few  others,  efforts  are  being  made  to  meet  the  needs 
of  unorganized  labor  in  a  different  way — by  direct  municipal 
insurance  funds,  such  as  the  "  provided  "  schemes  described 


470  SOCIAL  INSURANCE 

earlier  in  the  chapter,  the  fund  receiving  the  dues  (or 
premiums)  of  those  voluntarily  insured,  usually  uniform  for 
persons  of  all  trades  and  ages  and  granting  a  benefit  to  which 
a  subsidy  is  added.  There  is  little  reason  to  expect,  however, 
that  these  plans  should  prove  more  successful  than  those  in 
Cologne,  Berne,  Bologna,  etc.,  already  described. 

How  do  these  subsidized  systems  meet  the  essential  diffi- 
culties of  unemployment  insurance  which  have  been  found  to 
interfere  so  seriously  with  the  working  of  the  direct  municipal 
system,  namely,  the  difficulties  of  (1)  proper  definition  of 
unemployment;  (2)  its  distinction  from  other  forms  of  en- 
forced or  voluntary  idleness,  and  (3)  tendency  to  malingery? 
Here,  again,  there  is  a  wide  space  for  the  testing  of  divergent 
methods.  There  is,  however,  a  certain  uniformity  in  this 
variety.  In  so  far  as  all  of  these  schemes  work  in  co-operation 
with  the  trade  unions  or  similar  voluntary  organizations,  they 
depend  upon  the  system  of  supervision  of  these.  There  must 
be  in  each  one  of  these  organizations  an  incentive  for  pre- 
venting malingery  or  fraud,  because  they  themselves  pay  the 
larger  part  of  the  subsidy.  In  addition,  some  other  method 
of  control  usually  exists.  Thus,  most  of  the  insurance  sys- 
tems described  work  in  close  co-operation  with  "  labor  ex- 
changes "  or  public  employment  offices,  who  fulfil  the  double 
functions  of  control  and  prevention,  control  over  possible 
fraud,  and  prevention  by  placing  the  insured  unemployed 
either  in  public  or  private  employment.  Registry  at  such 
labor  exchanges  is  usually  required  as  a  condition  of  receiving 
the  subsidy.  In  Strassburg,  Erlangen,  and  several  other  Ger- 
man cities,  daily  visits  at  the  labor  exchange  during  the 
entire  period  of  unemployment  are  a  requirement — a  rather 
vigorous  method  of  control,  which  is  defended  also  upon  the 
ground  that  it  is  conducive  to  sobriety  and  offers  better 
chances  of  finding  employment.  A  good  deal  of  theoretical 
importance  is  ascribed  by  some  writers  to  these  methods  of 
control,  for  through  them  some  definite  system  may  develop 
to  overcome  one  of  the  serious  difficulties  of  direct  public 
unemployment  insurance. 

How  much  have  these  numerous  systems  succeeded  in  ac- 
complishing thus  far?  The  answer  to  this  question  is  not  an 
easy  matter,  for  most  of  these  systems  are  very  recent,  and 
moreover  it  is  always  difficult  to  get  an  accurate  measure- 


SUBSIDIZED  UNEMPLOYMENT  INSURANCE     471 

merit  when  dealing  with  a  large  number  of  diverse,  local, 
independent  organizations  rather  than  large  national  sys- 
tems. 

Perhaps  the  most  comprehensive  collection  of  statistical 
information  on  this  subject  is  contained  in  the  proceedings  of 
the  Conference  on  Unemployment  held  in  Paris  in  1910. 
Most  of  this  information  has  been  summarized  by  Mr.  J.  G. 
Gibbon  in  his  study  on  Unemployment  Insurance,  and  from 
his  tables  an  effort  may  be  made  to  measure  the  develop- 
ment as  a  whole. 


NUMBER  OF  PERSONS  INSURED  UNDER  THE  VOLUNTARY  SUBSIDIZED 
SCHEMES,  STATE  AND  MUNICIPAL 

Denmark 95,000 

Norway    50,000 

Belgium  (21  communal  funds) 40,000 

France  (state  system)   40,000 

Milan  (Italy)    12,000 

Holland  (11  communal  funds) 15,000 

Strassburg 5,000 

The  brief  list  includes  the  most  important  of  the  systems 
of  the  Ghent  (or  modified)  type,  and  in  seven  countries  it 
covers  a  little  more  than  250,000  wage-workers. 

A  general  estimate  of  the  Ghent  system  must  take  these 
facts  into  consideration.  As  the  first  successful  effort  to  apply 
social  forces  to  the  relief  of  the  unemployment  problem,  it  has 
its  enthusiastic  admirers,  who  consider  it  the  only  practical 
method  of  social  unemployment  insurance.  It  must  readily  be 
admitted  that  the  development  of  the  Ghent  system  was  a 
growth  of  large  importance.  But  it  also  has  its  very  rigid 
limitations.  Where  labor  organization  is  weak,  or  where,  as 
in  France,  they  have  done  very  little  in  the  field  of  unemploy- 
ment insurance,  the  Ghent  system  fails  to  show  results  that 
count.  And  in  all  countries,  it  scarcely  touches  the  very  worst 
forms  of  destitution  resulting  from  unemployment.  In  other 
words,  the  positive  results  of  the  Ghent  system — the  demon- 
stration of  the  perfect  possibility  of  unemployment  insurance, 
the  development  of  methods  of  meeting  all  its  specific  diffi- 
culties, are  due  to  the  fact  that  the  union  presents  a  unit 
of  compulsory  insurance.  Its  weakness  and  limitations  are 


472  SOCIAL  INSURANCE 

due  to  the  fact  that  the  very  existence  of  the  unit  is  a  volun- 
tary matter.  In  so  far  as  the  system  approaches  compulsory 
insurance,  it  is  within  its  own  limits  successful.  In  so  far  as 
it  is  voluntary,  it  fails  of  achieving  the  necessary  results. 

The  inevitable  inference  points  to  the  compulsory  principle 
in  this  as  in  other  lines  of  social  insurance. 


CHAPTER  XXVIII 

BEGINNINGS    OF    COMPULSORY    UNEMPLOYMENT 
INSURANCE 

Is  compulsory  insurance  against  unemployment  possible? 
Until  very  recently,  the  answer  to  the  query  was  unanimously 
in  the  negative.  Like  socialism,  it  had  been  tried  and  failed, 
and  that  had  settled  the  question  forever.  But  the  one  experi- 
ment in  compulsory  unemployment  insurance  bears  about 
the  same  relation  to  a  proper  organization  of  such  insurance 
as  Owen 's  experiments  to  the  ideal  of  a  co-operative  common- 
wealth. 

*  *  The  experiment  which  had  failed  ' '  was  made  in  the  small 
Swiss  town  of  St.  Gall  (in  the  canton  of  the  same  name),  in 
1894.  A  law  had  been  passed  by  the  canton  authorizing  all 
towns  to  establish  compulsory  unemployment  insurance  sys- 
tems if  they  saw  fit,  and  the  town  of  St.  Gall  was  the  first  and 
only  one  to  put  that  law  into  effect.  The  system  was  put  into 
effect  for  two  years  as  an  experiment.  The  expenses  of  the 
fund  were  to  be  met  partly  by  premiums  and  partly  by 
voluntary  donations  and  municipal  appropriations.  The  dues 
were  not  uniform,  but  depended  upon  the  earnings  of  the 
insured,  rather  than  their  trade  or  risk.  Though  the  original 
intention  was  to  make  the  insurance  system  universal,  excep- 
tions were  made  for  various  trades  and  for  various  considera- 
tions— the  compositors,  because  their  union  paid  out-of-work 
benefits ;  messengers,  etc.,  because  of  the  difficulty  of  applying 
a  test  to  their  employment;  railway,  postal,  and  telegraph 
employees,  because  they  did  not  suffer  from  unemployment 
except  through  their  own  misconduct. 

Though  the  system  was  compulsory,  the  compulsion  was  ex- 
ercised individually  upon  the  insured  (which  no  other  com- 
pulsory system  does)  and  failed  to  work.  Hundreds  failed 
to  comply,  and  some  of  them  were  fined.  More  gave  false 
statements  as  to  their  earnings,  so  as  to  reduce  their  payments. 
The  effort  to  enforce  regular  weekly  payments  directly  from 

473 


474  SOCIAL  INSURANCE 

workingmen  would  have  been  sufficient  excuse  for  the  most  dis- 
mal failure.  The  system  of  administration  was  extremely  un- 
satisfactory. The  administration  was  intrusted  to  the  Poor  Law 
Department  of  the  municipal  government,  which  gave  a  color 
of  charitable  relief  to  the  whole  scheme,  both  in  the  eyes  of 
the  administration  and  the  beneficiaries.  The  system  of  con- 
trol over  the  fact  of  unemployment  was  very  defective,  or 
hardly  existed  at  all.  Sick  persons,  or  persons  who  for  various 
reasons  declined  employment,  continued  to  draw  their  bene- 
fits. The  requirements  as  to  length  of  membership  were  not 
adhered  to.  In  other  words,  the  whole  machinery  worked  as 
poorly  as  it  could.  If  the  fact  is  added  to  this  that  the 
system  was  started  without  adequate  data  as  to  unemploy- 
ment, and,  therefore,  no  proper  balance  between  income  and 
outgo  could  be  expected,  there  is  little  ground  for  surprise 
that  a  heavy  deficit  developed  during  the  second  year.  The 
fact  that  employers  were  not  required  to  contribute  irritated 
the  insured,  especially  those  who  drew  no  benefits  and  per- 
haps could  not  reasonably  expect  to  draw  any.  By  far  the 
largest  share  of  the  benefits  went  to  unskilled  labor  and  to 
the  building  trades,  and  the  injustice  of  contributing  to  their 
support  was  acutely  felt  by  other  trades,  few  if  any  of  whose 
members  applied  for  relief. 

The  system  failed  (that  is,  was  not  renewed),  as  it  was 
predestined  to  fail.  It  was  the  only  system  that  actually  re- 
ceived a  trial.  Agitation  developed  in  Zurich  for  a  compul- 
sory system  of  unemployment  insurance  in  1898,  but  it  was 
not  adopted.  And  in  Basle  a  compulsory  unemployment  in- 
surance system  was  voted  in  1899,  but  after  its  adoption  was 
rejected  on  a  referendum  vote  by  5,458  votes  against  1,120, 
only  6,558  voting  out  of  an  electorate  of  over  16,000. 

And  that  is  all  there  is  to  the  popular  myth  that  compul- 
sory unemployment  insurance  was  thoroughly  tested  in  Swit- 
zerland and  found  impossible. 

Strange  as  it  may  appear,  this  slight  experience  (if  it  be 
worthy  of  that  name)  had  a  very  strong  effect  upon  the  later 
development  of  thought.  As  the  problem  of  unemployment 
became  pressing,  as  its  possibilities  were  proven  by  the  Ghent 
system,  and  yet  also  its  limitations,  the  question  frequently 
came  up  for  consideration.  During  the  last  decade  many 
proposals  for  compulsory  insurance  against  unemployment 


COMPULSORY  UNEMPLOYMENT  INSURANCE     475 

insurance  were  urgently  made  in  Germany,  in  France,  in  the 
United  Kingdom,  and  in  several  small  German  states.  Com- 
missions were  appointed  to  investigate  the  questions,  and  their 
decisions  were  always  against  the  compulsion.  Combined 
with  it  usually  went  a  good  deal  of  enthusiasm  for  the  Ghent 
system.  In  France  the  Superior  Council  of  Labor  took  a 
stand  against  both  the  compulsory  plan  and  the  plan  of  sub- 
sidizing voluntary  associations,  but  two  years  later  the  latter 
plan  was  adopted.  The  well-known  investigation  of  the  prob- 
lem made  by  Germany's  Labor  Bureau  arrives  at  the  same 
conclusion  concerning  the  compulsory  proposals,  arguing  (on 
the  basis  of  St.  Gall's  experience),  that  it  burdens  the  occu- 
pations with  little  or  no  unemployment,  in  favor  of  those 
suffering  in  a  marked  degree  from  it.  The  evident  fact  was 
disregarded  that  differences  in  rates  could  satisfactorily  meet 
all  such  objections.  In  general  the  report,  though  avoiding 
positive  recommendations,  leans  to  the  Ghent  method  of  assist- 
ing voluntary  insurance. 

Within  the  last  few  years  the  problem  has  received  very 
energetic  discussion  in  Great  Britain.  The  two  most  com- 
prehensive investigations  and  studies  of  the  whole  subject 
made  during  this  period  are  those  of  D.  F.  Schloss  and  J.  G. 
Gibbon.  It  is  significant,  in  view  of  the  subsequent  action 
taken  by  Great  Britain,  that  both  these  investigators  ex- 
pressed their  decided  preference  in  favor  of  the  Ghent  system 
and  against  any  compulsory  state  system.  Mr.  Schloss  sug- 
gested that  the  principles  of  the  systems  of  Denmark  and 
Norway  be  followed,  namely,  that  insurance  be  voluntary: 
(a)  the  funds  be  organized  preferably  on  trade  lines;  and  (D) 
on  national  rather  than  local  lines. 

Mr.  Gibbon  is  still  more  explicit  in  his  preferences.  He 
concludes  his  valuable  analytical  study  with  a  comprehen- 
sive list  of  twenty-three  conclusions,  in  which  a  definite  plan 
of  action  is  lucidly  outlined,  both  on  its  positive  and  negative 
side.  The  most  important  of  these  conclusions  may  here  be 
quoted  with  advantage. 

1.  It  is  necessary  that  provision  should  be  made  against 
unemployment. 

2.  This  provision  should  be  made  through  insurance. 

3.  The   community  should  financially  aid  the  making  of 
this  provision. 


476  SOCIAL  INSURANCE 

4.  This  assistance  should  be  given  so  as  to  encourage  self- 
help.    The  amount  of  assistance  should  not  be  more  than  the 
provision  made  by  the  workmen  themselves. 

5.  It  does  not  seem  expedient  that  this  insurance  should  be 
made  compulsory. 

6.  Fullest  use  should  be  made  of  voluntary  associations,  and 
preference   should   be   given  to   insurance   effected   through 
these. 

7.  Side  by  side  with  these  there  should  be  a  system  of 
direct   insurance    of   persons   not    affiliated   with    voluntary 
organizations. 

8.  In  these  direct  schemes  the  premium  rates  should  vary 
according  to  the  risk  of  unemployment  in  the  trade. 

9.  It  does  not  seem  expedient  to  require  compulsory  con- 
tributions from  employers. 

In  face  of  these  expert  opinions,  Great  Britain  was  the 
first  country  to  establish,  through  its  National  Insurance  Act, 
a  national  system  of  unemployment  insurance,  which  is  (1) 
compulsory;  (2)  requires  contributions  from  employers. 

The  logic  of  events,  therefore,  proved  much  stronger  than 
the  logic  of  academic  science.  Though  the  portion  of  the  act 
dealing  with  unemployment  is  very  much  more  limited  in  its 
scope  than  that  concerning  insurance  against  sickness  and 
invalidity,  its  theoretical  importance  is  vastly  greater.  For, 
in  the  organization  of  sickness  insurance,  Great  Britain  fol- 
lowed closely  German  precedents,  but  the  solution  of  the 
problem  of  unemployment  offered  by  the  law  makes  a  new 
contribution  to  the  theory  and  practice  of  social  insurance. 
While  academic  economic  science  thought  (as  it  often  does) 
a  liberal  imitation  of  institutions  existing  elsewhere  the  limit 
of  possible  economic  action,  it  was  the  distinct  service  of  those 
whose  influence  stood  behind  the  National  Insurance  Act, 
that  they  saw  the  necessity,  as  well  as  the  possibility,  of  tak- 
ing a  step  in  advance  of  existing  precedents.  And  only  thus 
is  social  progress  realized. 

The  essential  provisions  of  this  compulsory  system  of  insur- 
ance against  unemployment  are  simple.  It  extends  over  the 
following  trades:  (1)  building,  (2)  construction,  (3)  ship- 
building, (4)  mechanical  engineering,  (5)  iron-founding,  (6) 
manufacture  of  vehicles,  (7)  saw-milling,  or,  in  brief,  over  the 
two  great  divisions  of  British  wage-labor,  construction  and 


COMPULSORY  UNEMPLOYMENT  INSURANCE     477 

engineering.  According  to  the  estimate  of  Mr.  Lloyd  George 
himself,  this  will  include  some  2,400,000  workmen  against  a 
total  number  of  16,000,000  in  Great  Britain,  though  permis- 
sion is  granted  to  the  administrative  authorities  to  extend 
the  scope  of  this  system.  It  is  because  of  this  limitation  that 
the  unemployment  insurance  system  is  spoken  of  as  an  ex- 
periment. The  limitation  was  defended  not  only  on  the  plea 
of  necessity  for  further  experience  before  further  extensions 
are  made,  but  also  because  the  trades  enumerated  suffer  most 
from  unemployment.  In  the  other  two  large  branches  of 
British  industry,  cotton  manufactures  and  coal  mining,  the 
fluctuations  in  production  are  largely  met  by  short  hours,  and 
the  situation,  therefore,  is  less  acute.  As  to  casual  labor  on 
docks,  the  special  difficulties  of  the  situation  evidently  acted 
as  a  deterrent.  Within  the  limits  prescribed,  almost  all  prin- 
ciples laid  down  by  Mr.  Gibbon  were  broken.  The  employer 
is  forced  to  contribute  an  amount  equal  to  that  of  the  in- 
sured, namely,  2  l-2d.,  or  5  cents.  To  the  total  sum  of  con- 
tributions, amounting  to  5d.,  or  10  cents,  per  week  per  em- 
ployee, the  state  treasury  adds  one-third,  which  equals  1  2-3d., 
or  3  1-3  cents,  per  employee.  In  other  words,  not  only  is  the 
employer  required  to  contribute,  but  the  total  subsidy  is  very 
much  larger  than  the  share  contributed  by  the  employee  him- 
self— 8  1-3  cents  against  5  cents  per  week.  For  this  amount 
the  workman,  in  case  of  unemployment,  is  entitled  to  7s. 
($1.75)  per  week  for  fifteen  weeks  during  any  one  year,  or 
altogether,  $26.25,  provided,  however,  he  has  to  his  account 
five  weekly  premiums  for  every  weekly  benefit  he  claims. 
During  the  first  week  of  unemployment  no  benefit  is  given. 
It  is  assumed  that  few  workmen  are  in  a  position  where  they 
cannot  stand  the  loss  of  one  week's  wages  without  relief. 

The  system  is  a  direct  state  insurance  plan.  A  general 
unemployment  fund  is  created,  into  which  all  dues  flow,  and 
out  of  which  the  benefits  are  paid.  Nevertheless  the  vast 
system  of  trade  union  employment  benefits  which  has  grown 
up  in  Great  Britain  is  not  disregarded.  The  unions  may  act 
as  agents  for  the  funds,  receiving  the  dues  and  paying  the 
benefits,  for  which  they  are  reimbursed  from  the  National 
Unemployment  Fund.  In  this  simple  way  the  trade  unions 
are  enabled  to  continue  their  out-of-work  benefit  system  and 
preserve  the  cohesive  force  of  such  systems,  and  since  they 


478  SOCIAL  INSURANCE 

can  buy  6d.  worth  of  insurance  for  2  l-2d.,  may  either  reduce 
their  dues,  or  correspondingly  increase  their  out-of-work  bene- 
fits. Since  the  benefits  of  the  national  system  are  hardly  suffi- 
cient for  the  support  of  a  family,  room  is  left  for  voluntary 
effort. 

As  a  sort  of  compensation  to  the  other  trades,  over  which 
the  compulsory  system  has  not  been  extended,  special  pro- 
vision is  made  for  subsidizing  other  out-of-work  benefit  sys- 
tems, by  payment  of  not  over  one-sixth  of  the  premiums. 
These  subsidies  do  not  come  out  of  the  unemployment  fund. 
During  the  first  few  months  of  the  application  of  the  law 
274  associations  applied  for  such  subsidies. 

Special  consideration  for  the  interests  of  trade  unions  and 
desire  for  their  good  will  and  co-operation  are  shown  signifi- 
cantly in  the  provisions  which  safeguard  the  possibility  of 
conflict  with  their  activity  for  general  betterment  of  the 
wage-workers.  Evidence  is  naturally  required  that  the  appli- 
cant for  the  benefit  is  unable  to  obtain  employment,  and  has 
not  refused  a  reasonable  offer  of  such,  but  he  may  refuse 
employment  in  a  situation  vacant  because  of  a  trade  dispute 
(strikes  or  lockout)  ;  he  may  refuse  employment  at  a  rate 
of  wages  lower  or  conditions  less  favorable  than  those  which 
he  habitually  obtained,  those  generally  observed  in  a  given 
locality  by  trade  agreements,  without  forfeiting  his  right  to 
the  benefit.  In  this  way  the  possible  coercive  power  of  the 
insurance  system  upon  the  standard  of  the  unemployed  is 
removed.  How  this  plan  will  work  out  in  actual  application 
remains  to  be  seen,  but  the  straightforward  way  in  which  the 
unionist's  point  of  view  is  recognized  by  the  state  certainly 
deserves  commendation. 

Of  the  many  other  provisions  of  the  act  it  is  necessary 
to  mention  at  least  those  methods  by  which  other  objections 
to  a  compulsory  system  are  met.  It  is  recognized  that  certain 
establishments,  certain  employers,  or  even  individual  em- 
ployees may,  for  some  reason  or  other,  present  an  exception- 
ally low  risk  of  unemployment.  Care  is  taken  that  these 
should  not  be  burdened  over  and  above  the  actual  risk  pre- 
sented. To  accomplish  this,  an  employer  may  claim  the  reim- 
bursement of  one-third  of  his  own  contributions  for  each 
employee  continuously  (at  least  forty-five  weeks  throughout 
the  year)  employed  by  him.  This,  reimbursement  equals 


COMPULSORY  UNEMPLOYMENT  INSURANCE     479 

throughout  the  year  from  75  cents  to  87  cents  per  employee. 
Again,  each  insured  may  at  the  age  of  sixty  claim  the  reim- 
bursement of  all  the  difference  between  his  contributions  and 
the  amount  drawn  in  unemployment  benefits.  In  the  case 
of  a  workman  employed  for  1,500  or  2,000  weeks  (thirty  or 
forty  years)  before  he  reaches  the  age  of  sixty,  that  would 
amount  to  $75  to  $100. 

These  provisions  and  many  other  similar  ones  must  go  far 
in  overcoming  any  natural  opposition  of  many  workmen 
against  the  compulsory  levy  of  contributions. 

The  system  has  gone  into  operation  too  recently  to  furnish 
any  data  as  to  its  failure  or  success,  but  it  is  built  upon  a 
solid  foundation.  The  most  serious  danger  which  confronts 
it  is  the  possibility  of  an  industrial  crisis  with  an  excep- 
tional amount  of  unemployment  and  consequent  exhaustion 
of  the  unemployment  fund.  Even  this  contingency  is  pro- 
vided for.  The  Board  of  Trade  may,  under  such  conditions, 
either  decrease  the  benefits  to  not  less  than  5s.  a  week,  or 
increase  the  dues  equally  from  employer  and  employee,  by  not 
over  one  penny  per  week  from  either.  Such  an  order  may 
increase  the  revenue  of  the  fund  by  40$ — on  an  assumption  of 
2,500,000  insured,  by  some  $120,000  a  week,  allowing  for  an 
increase  of  some  96,000,  or  nearly  40$,  in  the  rate  of  unem- 
ployment. This  in  itself  may  be  enough,  but,  on  the  other 
hand,  in  fat  years  a  reserve  may  be  accumulated,  for  the 
periodical  crisis  must  be  expected.  It  would  be  unfortunate 
if  such  a  crisis,  like  a  conflagration  in  the  experience  of  a 
fire  insurance  company,  would  occur  before  such  reserves 
have  accumulated. 

But  whoever  knows  the  temper  of  English  political  life, 
will  scarcely  fear  that  such  an  untoward  event  will  be  per- 
mitted to  break  down  the  tremendous  structure  of  unemploy- 
ment insurance  for  lack  of  funds. 


CHAPTER  XXIX 

THE  SOCIAL  IMPORT  OF  SOCIAL  INSURANCE. 
A  SUMMARY 

IN  the  preceding  chapters  the  various  branches  of  social 
insurance  were  studied  at  some  detail  and  the  specific  prob- 
lems of  each  branch  were  discussed.  While  the  treatment  of 
the  subject  has,  therefore,  necessarily  become  somewhat  diffuse, 
the  general  social  purpose  of  the  sum-total  of  the  measures 
described  was  not  lost  sight  of.  In  this  concluding  chapter, 
an  effort  will  be  made  to  point  out  the  essential  features 
common  to  all  these  branches,  the  general  purpose  which  lies 
back  of  them,  the  results  achieved  already,  the  arguments  to 
be  made  in  defense  of  this  policy,  the  objections  which  are 
often  raised  against  all  of  them,  and  the  problems  which 
must  arise  in  connection  with  the  whole  field  of  social  insur- 
ance. The  treatment  of  these  general  aspects  for  considera- 
tions of  space  will  be  much  briefer  than  would  be  desirable, 
but  at  least  the  most  important  problems  cannot  remain  abso- 
lutely untouched. 

That  the  purpose  of  every  one  of  the  measures  described 
is  to  give  relief  in  case  of  human  destitution,  is  sufficiently 
apparent.  And  yet  it  would  be  an  extremely  narrow  inter- 
pretation of  the  social  insurance  movement  to  consider  it 
part  and  parcel  of  a  system  of  relief  work,  of  public  charity 
organization.  Relief  is  also  the  purpose  of  personal  or  public 
alms-giving,  of  workhouses  or  poorhouses,  which  are  institu- 
tions or  systems  based  upon  entirely  different  premises.  It  may 
be  true  that  some  social  insurance  institutions,  such  as  old-age 
pensions,  or  municipal  unemployment  funds,  have  grown  di- 
rectly out  of  methods  of  public  relief.  It  is  equally  true 
that  as  yet  a  great  many  insurance  systems  provide  amounts 
too  small  to  be  considered  anything  more  than  relief,  and 
insufficient  relief  at  that.  The  theory  of  an  "  Existenz- 
minimum  "  is  at  the  foundation  of  many  benefit  scales. 
Nevertheless,  there  is  a  radical  difference  between  the  two 

480 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      481 

theories,  and,  historically,  insurance  systems  have  often  de- 
veloped as  protests  against  relief,  against  its  insufficiency, 
both  extensive  and  intensive,  against  its  degrading  character, 
and  against  its  social  injustice. 

The  purpose  of  relief  is  to  grant  the  necessary  minimum 
for  a  physiological  existence,  and  that  only.  In  actual  prac- 
tice it  often  grants  less  than  that.  The  ideal  purpose  of 
social  insurance,  the  purpose  to  which  at  least  the  best  insur- 
ance systems  tend  (and  the  others  slowly  follow),  is  to  pre- 
vent and  finally  eradicate  poverty,  and  the  subsequent  need  of 
relief,  by  meeting  the  problem  at  the  origin,  rather  than  wait- 
ing until  the  effects  of  destitution  have  begun  to  be  felt. 

It  is  quite  true  that  the  prevention  of  poverty  may  to  many 
appear  an  over-ambitious,  almost  a  Utopian  plan.  Beginning 
with  Malthus,  who  thought  poverty  of  the  majority  of  the 
human  race  an  inevitable  biologic  law,  and  down  to  Attorney- 
General  Bonaparte,  who  defended  poverty  as  a  necessary  social 
institution,  the  absence  of  which  would  dry  up  all  the  foun- 
tains of  human  sympathy,  there  were  numberless  variations  of 
the  "  Leitmotiv  "  that  "  the  poor  we  have  always  had  with 
us  ' '  and  always  shall  and  always  must.  On  the  other  extreme 
is  the  ultra-orthodox  Marxist  convinced  that  poverty  must 
not  only  remain,  but  grow  until  the  co-operative  common- 
wealth has  been  established  in  all  its  glory. 

Much,  however,  depends  upon  the  true  definition  of  the 
term  "  poverty."  In  one  sense  the  vast  majority  of  the 
people  in  every  industrial  country  are  poor.  They  are  poor 
because  they  do  not  get  an  equitable  return  for  their  labor, 
because  to  them  comes  but  a  very  small  share  of  the  total 
social  product  of  the  community.  They  are  poor  because 
they  must  earn  their  bread  in  the  sweat  of  their  brow — while 
a  small  leisure  class  wastes  its  life  in  insane  luxury.  They  are 
poor  because  they  can  enjoy  but  the  merest  crumbs  from  the 
rich  table  that  modern  civilization  and  industrial  develop- 
ment could  provide  for  all.  They  are  poor  because  not  for 
them  ever  opens  the  rich  world  of  art,  poetry,  and  music 
which  should  be  the  property  of  the  human  race,  and  still 
remains  in  the  monopolistic  ownership  of  the  few.  And  noth- 
ing but  a  complete  reorganization  in  the  principles  of  social 
distribution  can  be  expected  to  correct  this  almost  universal 
poverty  of  human  society  which  the  glowing  accounts  of  the 


482  SOCIAL  INSURANCE 

increase  in  "  national  "  wealth  emphasize  with  gruesome 
eloquence. 

But  there  is  a  much  more  circumscribed  definition  of  pov- 
erty— the  poverty  of  those  who  are  on  the  margin  of  want 
most  of  their  lives.  There  is  the  poverty  of  those  who  cannot 
maintain  the  necessary  physiological  minimum,  and  can  only 
meet  their  economic  problem  either  by  a  life  which  results  in 
degeneration  of  the  individual  and  family,  or  by  an  appeal 
for  charitable  relief  which  results  in  a  loss  of  economic  inde- 
pendence, and  is  penalized  by  modern  society  in  many  legal 
and  social  ways. 

It  is  this  narrower  problem  of  poverty  that  is  urgently  de- 
manding a  solution,  and  no  promise  of  a  future  millennium 
can  quite  solve  it. 

Can  this  problem  be  solved?  The  usual  causes  of  this 
poverty  have  already  been  enumerated.  It  will  do  no  harm, 
however,  to  repeat  them:  Absence  of  a  wage-earner  in  the 
family  (premature  death  by  accident  or  any  other  cause,  or 
desertion),  disability  to  work  (accident,  sickness,  motherhood, 
invalidity,  old  age),  or  inability  to  obtain  a  living  (unemploy- 
ment), these  three  causes  practically  cover  all  causes  of  pov- 
erty. In  numerous  ways  social  insurance  institutions  meet 
exactly  the  situations  enumerated  above.  In  a  vast  number 
of  cases,  they  have  been  successful  in  meeting  the  problem 
fully.  Why  cannot  a  complete  development  of  this  social 
structure  be  expected  to  solve  these  problems  entirely? 

If  the  hope  be  considered  Utopian,  a  parallel  illustration 
might  be  found  useful  to  drive  the  point  home.  In  primitive 
communities  the  hazard  of  fire  is  a  potent  cause  of  poverty. 
The  sight  of  a  peasant  leading  a  horse  hitched  to  a  wagon 
of  very  primitive  construction,  with  a  bell  emitting  pitiful 
appeals  for  contributions  to  the  people  of  a  burned  village 
is  still  common  in  the  streets  of  Moscow  or  any  other  large 
Russian  town.  The  social  loss  from  destruction  of  property 
by  fire  in  the  United  States  is  enormous.  It  is  vastly  greater 
than  in  Russia  and  does  not  show  any  tendency  to  abate. 
It  amounts  to  from  $200,000,000  to  $250,000,000  annually. 
But  who  thinks  of  this  fire  danger  as  a  cause  of  human  pov- 
erty? What  is  the  difference  between  Russia  and  the  United 
States  ?  Only  this,  that  in  the  latter  country  fire  insurance  is 
almost  universal,  while  in  the  former  it  is  still  the  privilege  of 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      483 

a  few  only.  The  Russian  peasant  is  either  too  ignorant  or  too 
poor  to  protect  himself  against  this  danger  of  poverty.  The 
American  people  have  eliminated  this  one  cause  of  poverty, 
even  though  it  costs  them  nearly  $400,000,000  a  year  to  pro- 
vide against  a  loss  of  little  more  than  half  that  sum. 

But  do  the  actual  results  achieved  by  social  insurance  jus- 
tify this  sanguine  hope  as  to  its  ultimate  powers  ?  Isn  't  there, 
as  a  matter  of  fact,  a  tremendous  amount  of  human  poverty 
remaining  in  the  very  countries  where  insurance  institutions 
have  flourished  the  most? 

A  thoroughly  scientific  inquiry  along  these  lines  is  an  under- 
taking entirely  beyond  the  scope  of  this  elementary  study. 
The  statistical  study  of  the  results  accomplished  through  social 
insurance  requires  a  detailed  examination  of  a  wealth  of 
figures  which  cannot  be  undertaken  here.  In  the  preceding 
chapters,  therefore,  the  methods  and  problems  have  been 
discussed,  and  the  results  alluded  to,  if  at  all,  in  very  general 
terms  only. 

One  measure  of  these  results  is  the  total  sum  of  benefits 
paid  out  to  the  insured  under  the  various  insurance  plans. 
Taking  all  countries  together,  these  benefits  amount  to  hun- 
dreds of  millions  of  dollars  annually.  Since  in  Germany  these 
payments  were  greatest,  perhaps  it  is  sufficient  to  quote  these 
German  figures.  It  is  of  interest  to  know,  for  instance,  that 
in  the  first  twenty-five  years  (1885-1910)  of  the  existence  of 
the  German  social  insurance  system,  8,393,000,000  Marks 
(over  $2,000,000,000)  was  paid  out  in  such  benefits,  not  count- 
ing the  cost  of  administration  and  the  amounts  accumulated ; 
that  in  1910  alone,  nearly  720,000,000  Marks  ($172,000,000) 
was  paid  out  in  this  way.  And  it  is  difficult  to  imagine  that 
this  large  and  growing  current  of  money  paid  to  those  who 
would  otherwise  suffer  bitter  need  for  lack  of  means  or 
chance  to  earn  a  livelihood,  has  failed  to  eliminate  a  large 
amount  of  human  destitution. 

Nevertheless,  the  argument  just  made  might  be  charged 
with  the  unpardonable  crime  of  pure  logic — petitio  principii. 
What  is  the  use  of  pointing  to  all  this  flood  of  millions,  if,  as 
a  matter  of  fact,  poverty,  pauperism  does  continue  to  grow? 
This,  on  the  face  of  it,  is  a  strong  argument.  It  is  often 
made  by  opponents  of  social  insurance.  In  America  it  was 
made,  and  very  energetically,  by  Professor  Farnam  some 


484  SOCIAL  INSURANCE 

ten  years  ago,  and  his  statements  are  still  frequently  quoted, 
though  it  is  doubtful,  if  in  view  of  the  growth  of  interest  in 
social  insurance  in  the  United  States,  he  would  be  willing 
at  present  to  make  the  same  argument,  at  least  with  the  same 
emphasis.  More  recently,  Dr.  F.  Friedensburg,  a  German 
official  for  many  years  connected  with  the  Social  Insurance 
system,  has  again  brought  it  forth,  and  his  statements  have 
been  given  wide  publicity.  The  argument  thus  raised  re- 
peatedly deserves  a  very  careful  consideration. 

How  is  the  fact  of  increasing  pauperism  established  ?  And 
how  does  it  reflect  upon  the  ability  of  social  insurance  to 
cope  with  the  problem?  It  is  manifestly  a  matter  of  great 
difficulty  to  measure  the  amount  of  human  destitution.  The 
usual  procedure  is  based  upon  a  statistical  study  of  the  amount 
of  relief  given,  and  the  most  important  investigations  were 
based  upon  study  of  German  statistics,  not  only  because  they 
are  most  complete,  but  because  there  the  argument  is  strongest 
in  view  of  the  vast  structure  of  social  insurance. 

On  the  basis  of  these  investigations,  the  charge  is  made 
that  the  amount  of  poor  relief  in  Germany  has  actually  in- 
creased. As  a  matter  of  fact,  this  statement  itself  is  far  from 
having  been  established.  Twice  within  this  quarter  of  a  cen- 
tury, in  1895  and  again  in  1901,  the  powerful  German 
Verein  fiir  Armenpflege,  and  again  the  German  Imperial 
Statistical  Office  in  1894,  have  undertaken  a  comprehensive 
study  of  this  problem  of  how  far  social  insurance  has  suc- 
ceeded in  reducing  the  expenditure  for  poor-relief,  and  the 
results  were  not  sufficiently  conclusive  one  way  or  the  other. 
The  main  problem  to  be  answered  was,  "  Has  the  care  of  the 
poor  been  relieved  by  workingmen's  insurance?  >!  In  some 
communities  it  was,  and  others  did  not  feel  the  effect.  But 
admitting  for  argument 's  sake  that  the  expenditures  for  poor- 
relief  have  actually  grown,  may  this  fact  be  used  as  an  argu- 
ment against  the  effectiveness  of  the  social  insurance  prin- 
ciple ? 

The  purpose  of  social  insurance  is  to  relieve  those  who 
would  otherwise  suffer — not  to  relieve  the  budgets  of  public 
or  private  charity  organizations.  It  is  true  that  it  was 
often  argued  by  over-enthusiastic  advocates  of  this  or  that 
scheme,  that  it  would  do  away  entirely  with  the  necessity  for 
relief. 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      485 

But  evidently  no  system  of  poor-relief  has  ever  come  at  all 
near  the  actualneed  of  it.  The  fluctuations  in  the  amount 
of  relief  granted  might  be  assumed  to  reflect  the  state  of 
need,  but  the  general  development  of  relief  systems  is  just 
as  much  influenced  by  the  degree  of  care  society  is  willing 
to  give  to  the  needy.  Unless  this  factor  is  taken  into  con- 
sideration, it  might  easily  be  argued  that  there  is  more 
destitution  in  Great  Britain  than  in  Russia,  because  more  is 
spent  for  poor-relief  in  Great  Britain,  while  Russia  has  hardly 
developed  a  public  system  of  relief.  So  much  credit  may  be 
given  to  the  growth  of  humanitarian  ideas  in  modern  society, 
that  it  is  less  and  less  able  to  stand  by  and  remain  absolutely 
inert  in  face  of  actual  destitution  than  it  was  fifty  or  one 
hundred  years  ago. 

That  alone  would  fully  explain  the  growth  of  the  cost  of 
poor-relief,  and  in  addition  must  be  mentioned  the  increasing 
cost  of  living,  which  also  makes  poor-relief  more  costly,  the 
growth  of  scientific  charity,  which  begins  to  pay  more  atten- 
tion to  prevention  and  rehabilitation,  which  is  more  costly 
than  simple  alms-giving. 

Moreover,  the  factors  which  cause  destitution,  or  at  least 
some  of  them,  have  meanwhile  been  increasing;  accidents 
have  increased,  unemployment  has  increased,  family  abandon- 
ment has  grown,  and  old  age  has  grown  in  importance. 

But  how  is  it  that  insurance  has  failed  to  meet  all  this 
situation?  The  obvious  answer  is  that  in  no  country  has 
social  insurance  at  all  approached  the  complete  state  which 
alone  could  accomplish  the  necessary  result.  The  following 
three  facts  must  be  borne  in  mind  when  this  argument  is 
brought  forward  in  opposition  to  the  policy  of  social  insur- 
ance. 

1.  In  no  country  have  all  the  branches  of  social  insurance 
been  developed. 

Many  countries  lack  a  national  system  of  sickness  insur- 
ance, only  a  few  have  systems  of  old-age  insurance,  the  first 
experiment  in  national  compulsory  unemployment  insurance 
has  only  just  been  made  in  England,  and  in  ordinary  life  insur- 
ance we  have  scarcely  gone  beyond  the  first  steps.  Complete 
as  the  German  system  is  supposed  to  be,  it  does  not  cover 
unemployment,  and  provision  for  widows  and  orphans  was 
not  made  until  a  few  months  ago. 


486  SOCIAL  INSURANCE 

2.  Scarcely  any  known  system  is  absolutely  inclusive.    Here 
the  British  Compensation  Act,  with  its  all-embracing  formula 
of  "  any  employment,"  is  one  of  the  few  happy  exceptions. 
Even  in  the  best  acts,  a  fringe  of  unprotected  workmen  is 
left  on  the  outside,  either  because  their  industry  is  not  cov- 
ered, or  their  earnings  are  beyond  the  limit,  or  because  em- 
ployment is  casual.    Even  in  Germany  the  recent  revision  of 
the  insurance  law  has  resulted  in  extension  of  the  sickness 
insurance    system    to    5,000,000    wage-workers    hitherto    un- 
protected.    If,  in  some  countries,  the  excepted  class  repre- 
sents only  a  small  minority;  in  others  very  large  bodies  of 
wage-workers,  such  as  farm  laborers  or  domestic  servants, 
counting  millions,   are   still   without   the  pale  of  insurance 
protection. 

3.  The  systems,  with  the  possible  exception  of  some  accident 
compensation  laws,  grant  inadequate  relief.     It  is  a  sad  fact 
that  in  the  extension  of  social  insurance,  few  if  any  compen- 
sation or  benefit  scales  have  been  radically  revised.     Newer 
acts  have  admitted  the  insufficiency  of  older  scales,  by  provid- 
ing more  liberal  ones.    The  70$  of  wages  given  in  Netherlands, 
and  80$  granted  by  the  new  Swiss  act,  emphasize  the  insuffi- 
ciency of  the  older  scales  of  50$  and  even  60$  which  still 
predominate.     The  standard  of  wages  of  the  majority  of  the 
workingmen  is  not  so  high  that  one-half  of  it  should  suffice 
for  freedom  from  charitable  relief  in  all  cases.     In  sickness 
insurance,  benefits  are  scarcely  above  50$;  old-age  pensions, 
whether  acquired  by  insurance  or  gratuitously,  are  far  below 
even    the    Existenzminimum    which    they    are    supposed    to 
furnish ;    so   that    even    the    receipt    of   a    benefit   does   not 
always  preclude  the  necessity  of  an  appeal  for  charitable 
relief. 

In  view  of  these  limitations,  how  can  the  efficiency  of  the 
social  insurance  method,  its  potential  powers,  be  judged  by 
the  existing  need  for  relief,  or  especially  by  the  amount  of  re- 
lief provided?  The  deep  and  vast  sea  of  human  destitution 
is  fed  by  many  springs.  Social  insurance  aims  to  dam  these 
springs  so  as  to  destroy  the  sources  from  which  the  sea  is 
fed.  If  only  a  few  of  the  springs  have  been  dammed,  and 
in  others  the  dams  are  leaky,  or  not  sufficiently  high  to  prevent 
the  flow,  how  can  the  fact  that  the  sea  has  not  been  altogether 
dried,  be  used  as  an  argument  against  the  usefulness  of  dams 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      487 

in  general?  And  if,  while  some  springs  have  been  dammed, 
others,  for  other  reasons  have  grown  to  many  times  their 
former  size,  the  sea  might  actually  have  become  deeper.  Yet 
this  is  proof  that  more  dams  are  needed,  not  that  dams  are  no 
good  at  all. 

But  new  dams  are  being  built  all  the  time.  When  the  effect 
is  studied  by  careful  investigation  of  the  separate  springs, 
rather  than  by  hasty  observation  of  the  whole  sea,  the  efficiency 
of  social  insurance  methods  becomes  apparent.  Intensive  in- 
vestigation of  applicants  for  charity  in  this  country  proves 
that  accidents  and  disease  are  a  powerful  factor  in  a  large 
proportion  of  cases.  Industrial  accidents  as  a  cause  of  pauper- 
ism in  Germany  have  been  eliminated  almost  altogether.  As  a 
result,  the  popularity  of  social  insurance  systems  is  growing 
all  the  time.  The  last  year  or  two  have  brought  a  rich  harvest. 
Numerous  proposals  and  plans  are  being  discussed  in  almost 
all  industrial  countries.  Unemployment  insurance  is  planned 
in  the  German  Empire  and  many  of  its  states,  as  well  as  in 
Austria,  Italy,  and  in  other  countries.  Austria  and  Italy, 
Russia  and  Norway,  Belgium  and  Holland  are  planning  old- 
age  insurance  systems.  Where  sickness  insurance  is  known 
in  its  voluntary  form,  compulsion  is  loudly  advocated.  Where 
certain  systems  of  accident  or  sickness  insurance  exist  in  a 
fragmentary  form,  their  further  extensions  are  only  a  matter 
of  time.  As  practice  develops  the  weak  points  in  the  system, 
labor  representatives  in  the  legislative  assemblies  demand 
radical  changes.  It  is  no  exaggeration  to  say  that  annually 
hundreds  of  new  bills  in  the  field  of  social  insurance  are  intro- 
duced in  the  various  parliaments  of  the  industrial  world,  far 
beyond  the  power  of  any  one  man  to  study  them  all  in  detail. 
This  is  the  answer  that  economic  and  social  progress  gives 
to  the  charge  of  inefficiency. 

Side  by  side  with  this  tendency  for  the  extension  of  the 
field,  there  is  another  tendency — to  unify  the  various  isolated 
legislative  acts  into  compact  structures  as  national  systems. 
In  Germany,  Great  Britain,  and  Switzerland,  this  tendency 
was  partly  successful.  In  Russia  and  in  Austria,  it  is  still 
working  out  its  destiny.  This  tendency  is  not  only  important 
from  the  point  of  view  of  efficient  and  economic  administra- 
tion, but  highly  significant  of  the  new  larger  view  upon  the 
functions  of  social  insurance.  It  carries  with  it  the  admission 


488  SOCIAL  INSURANCE 

that  social  insurance  is  no  more  an  experiment,  nor  even  a 
method  of  meeting  isolated  problems  when  they  become  urgent, 
but  a  universal  system  of  social  policy. 

But  granted  that  social  insurance  can  accomplish  these 
results,  is  not  its  cost  too  high  ?  Can  society  afford  it  ?  That 
such  a  question  can  still  be  asked,  is  a  sad  reflection  upon 
the  development  of  social  solidarity.  The  question  is  never 
seriously  asked  whether  society  can  afford  fire  insurance,  for  it 
is  property  and  not  human  lives  that  it  protects. 

Social  insurance  cannot  be  adjudicated  as  too  costly  on  the 
plea  that  there  is  a  perceptible  social  loss  in  its  organization, 
for  the  cost  of  management  is  universally  low,  while  in  fire  in- 
surance at  least  one-half  of  the  cost  is  consumed  in  the  very 
organization  and  administration.  The  plea  of  excessive  cost  is 
made  only  against  that  part  of  the  cost  which  is  contributed  by 
parties  other  than  the  insured  themselves — the  employers  (or 
industry)  and  the  state.  The  argument  is  very  emphatically 
advanced  by  Friedensburg,  for  instance,  that  the  enormous 
contributions  German  industry  is  already  forced  to  make  to 
the  existing  branches  of  social  insurance,  and  still  more  those 
which  may  be  exacted  in  the  future  through  further  exten- 
sions, threaten  to  become  an  unbearable  burden,  especially 
in  competition  with  other  nations  in  the  international  marts. 
This  is  not  a  very  new  argument.  There  is  scarcely  a  piece 
of  protective  labor  legislation  that  was  not  objected  to  on  the 
same  ground. 

But  what  are  the  facts?  Germany's  power  as  a  competitor 
in  international  markets  has  not  been  declining,  and  if  a  sys- 
tem of  social  insurance  is  a  handicap,  it  is  one  which  the  chief 
competitors  of  Germany — Great  Britain  and  France — seem 
particularly  anxious  to  establish  for  their  own  industry.  Be- 
sides, in  what  sense  can  social  insurance  be  a  burden  upon 
industry,  a  handicap  upon  its  development  ?  The  total  amount 
levied  upon  the  employers  is  purely  an  addition  to  the  latter 's 
pay-roll,  merely  an  increase  in  the  wages.  Is  any  such  increase 
a  burden  upon  industry?  Does  industry  depend  upon  a  low 
standard  of  wages? 

The  question  whether  any  nation  can  afford  a  system  of 
social  insurance  is  equally  a  question  whether  it  can  afford 
to  provide  an  "  Existenzminimum  "  for  its  injured,  its  sick, 
its  aged,  or  unemployed.  And  the  rapid  accumulation  of  capi- 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      489 

tal  in  every  industrial  society,  the  growing  annual  surplus,  is 
a  sufficient  answer  to  the  question. 

As  a  matter  of  fact,  the  cost  of  social  insurance,  even  in 
Germany,  where  more  has  been  accomplished  than  in  any 
other  country,  is  scarcely  a  material  factor  in  the  expenses 
of  production.  It  is  true  that  out  of  a  total  cost  of  9,674,- 
000,000  Marks  ($2,264,000,000),  for  twenty-five  years,  4,817,- 
500,000  Marks  ($1,127,000,000),  or  one-half,  was  contributed 
by  the  employers,  but  that  amount  could  only  constitute  a 
small  percentage  of  the  wage-roll,  and  a  still  smaller  percent- 
age of  the  total  value  of  the  products.  An  investigation  by 
Dawson,  embracing  a  large  variety  of  industrial  undertakings, 
shows  that  the  total  cost  of  insurance  to  the  industry  fluctuates 
between  8.2$  of  the  wage-roll  for  some  coal  mines,  and  2.2$ 
for  some  textile  establishments,  the  average  for  21  large  estab- 
lishments being  3.8$.  A  still  more  comprehensive  investiga- 
tion by  the  Hansabund *  of  304  corporations  in  mining, 
manufactures,  and  transportation,  with  a  total  capital  of 
1,500,000,000  Marks,  shows  that  the  cost  of  social  insurance 
in  1905  equaled  16.7$  of  the  dividends,  and  in  1909  23.7$. 
Thus,  as  a  result  of  this  social  legislation,  about  one-fifth 
(23.37: 123.37)  of  the  dividends  was  utilized  for  the  preven- 
tion of  human  destitution,  which  otherwise  would  have  re- 
sulted for  the  various  economic  losses  to  which  wage-earners 
are  subject.  Is  it  really  necessary  to  inquire  whether  any 
civilized  country  can  afford  to  utilize  at  least  one-fifth  of  its 
dividends  for  that  purpose  ? 

In  addition  to  the  burden  upon  the  industry,  there  is  also 
in  many  countries  a  burden  upon  the  national  fiscal  system, 
in  connection  with  sickness,  old-age,  or  unemployment  insur- 
ance. Just  as  emphatically,  the  danger  of  an  excessive  fiscal 
burden  has  often  been  emphasized  and  extensions  of  new 
forms  of  social  insurance  have  been  delayed  for  many  years 
because  of  this  fear. 

Can  the  burden  of  social  insurance  press  too  heavily  upon 
a  national  budget?  In  Germany  the  main  contributions  from 
the  national  treasury  have  been  to  the  old-age  and  invalidity 
insurance  systems.  For  nineteen  years  (1891-1909)  they 

1  Die  offentliche  rechtliche  Belastung  von  Gewerbe,  Handel,  und  In- 
dustrie, 1911,  p.  7.  Quoted  by  Friedrich  Zahn,  Belastung  durch  die 
deutsche  Arbeiterversicherung,  Berlin,  1912. 


490  SOCIAL  INSURANCE 

amounted  to  587,000,000  Marks  ($137,000,000),  truly  a  baga- 
telle for  the  powerful  German  Empire,  whose  imperial  budget 
alone  amounts  to  $700,000,000  annually,  and  counting  in  the 
budgets  of  subsidiary  German  states,  over  $2,000,000,000. 

From  a  fiscal  point  of  view,  the  burden  of  the  British  insur- 
ance system  is  greatest.  The  old-age  pension  system  costs 
about  $50,000,000  annually,  and  the  cost  of  the  new  national 
insurance  law  may  be  estimated  at  $35,000,000  or  $40,000,000. 
Now,  an  annual  expenditure  of  some  $85,000,000  to  $100,000,- 
000  may  appear  as  a  tremendous  burden  until  it  is  remem- 
bered that  the  national  budget  of  the  United  Kingdom  already 
exceeds  $1,000,000,000.  With  a  similar  budget,  the  United 
States  have  been  expending  some  $160,000,000  for  war  pen- 
sions. Of  course  the  introduction  of  a  national  system  of 
social  insurance  must  swell  the  national  budget.  But  the 
term  "  burden  "  is  altogether  inapplicable  to  it.  The  theory 
that  a  large  national  budget  is  of  itself  a  dangerous  thing, 
is  one  of  the  silliest  superstitions  of  a  kindergarten  eco- 
nomics. By  itself  it  simply  indicates  the  extension  of  social 
activity  at  the  expense  of  private  activity,  or  a  growth  of 
social  effort  in  new  directions  to  accomplish  socially  neces- 
sary results.  A  public  expenditure  becomes  a  burden  only, 
when  it  is  wasted,  or  when  it  goes  beyond  the  limits  made 
possible  by  the  amount  of  the  social  surplus.  Evidently  no 
expenditure  of  money  to  raise  the  standard  of  living  of  the 
neediest  and  productive  classes,  or  to  prevent  destitution 
among  them,  can  be  stigmatized  as  waste,  for  no  higher  pur- 
pose of  social  expenditures  can  be  imagined.  And  when  the 
question  whether  such  expenditures  are  justified  by  the  con- 
ditions of  the  social  surplus  is  asked,  it  may  be  sufficient  to 
point  to  the  estimate  of  national  wealth  of  the  United  States, 
which  has  increased  within  the  decade  1890-1900  from  $65,- 
000,000,000  to  $88,000,000,000,  or  over  30$,  within  the  four 
years  1900-1904  from  $88,000,000,000  to  $107,000,000,- 
000,  or  over  20$,  and  by  this  time  would  probably  justify  an 
estimate  of  at  least  $150,000,000,000.  Surely,  as  long  as  this 
country  can  boast  of  an  annual  social  surplus  of  some  $5,000,- 
000,000  after  all  truly  wasteful  expenditures,  both  private 
and  public,  have  been  discounted,  it  is  senseless  to  discuss 
seriously  whether  we  can  afford  the  expense  of  a  social 
insurance  system. 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      491 

The  fiscal  situation,  and  the  arguments  of  excessive  cost, 
can  be  very  succinctly  stated  in  the  one  following  sentence: 
The  class  which  needs  social  insurance  cannot  afford  it,  and 
the  class  that  can  afford  it  does  not  need  it.  To  solve  this 
socio-political  antinomy,  legislative  coercion  becomes  neces- 
sary. In  the  best  sense  of  the  word  is  social  insurance  true 
class  legislation.  It  is  nothing  but  an  effort  to  readjust  the 
distribution  of  the  national  product  more  equitably — not  in 
accordance  with  the  ideal  demands  of  equity,  but  at  least 
with  those  standards  which  due  consideration  for  national 
vitality  makes  immediately  imperative. 

But  the  objection  is  made  that  social  insurance  has  no 
power  to  make  such  readjustment.  The  ultra-radical  element 
in  the  labor  movement  insists  that  what  the  employing  class 
is  forced  to  contribute  to  the  cost  of  social  insurance  it 
recoups  itself  by  raising  the  cost  of  the  product  or  lowering 
the  wages,  in  other  words,  that,  in  the  final  analysis,  the  work- 
ing class  pays  for  it  all,  and,  therefore,  social  insurance  is 
worth  nothing  to  this  class. 

Now,  the  questions  of  the  incidence  of  any  superimposed 
compulsory  charge  are  not  easy  to  answer,  or  at  least  to 
answer  correctly.  If  the  tyro  in  economic  science  is  too  often 
prone  to  assume  that  the  charge  must  necessarily  remain  where 
originally  placed,  the  opinion,  at  the  other  extreme,  that  the 
whole  charge  will  necessarily  be  shifted  because  a  tendency 
towards  shifting  it  in  a  certain  direction  may  exist,  is  just 
as  much  at  variance  with  the  actual  facts.  A  tobacco  monopoly 
may  succeed  in  shifting  the  entire  weight  of  the  excise  upon 
the  consumers,  but  that  is  primarily  the  expression  of  the 
monopoly  power.  The  bitter  fight  of  the  employers  in  most 
countries  against  efforts  to  impose  part  of  the  cost  of  social 
insurance  upon  them,  is  evidence  presumptive,  in  any  case, 
against  their  ability  to  shift  the  entire  burden. 

What  evidence  is  there  of  such  shifting?  That  the  manu- 
facturer will  endeavor,  or  rather  is  forced  by  competitive 
conditions  to  try  to  shift  every  additional  charge  upon  the 
price  of  the  product  is  true  enough.  Even  then,  it  must  be 
noticed,  not  all  but  only  a  part  of  the  cost  would  be  shifted 
upon  the  wage-workers  themselves,  for  they  do  not  constitute 
all  the  consumers.  But  what  evidence  is  there  that  this  effort 
will  be  entirely  successful  ?  If  social  insurance  be  introduced 


492  SOCIAL  INSURANCE 

in  one  industry  only,  it  is  reasonable  to  expect  that  the  indus- 
try will  try  to  recoup  itself.  It  will  not  permit  the  rate  of 
profits  to  fall  below  the  normal  rate  of  profit  in  the  country 
and  at  the  time,  unless  such  readjustment  would  be  pos- 
sible through  price,  a  readjustment  of  capital  would  become 
necessary.  But  the  situation  is  somewhat  different  when  the 
system  is  universal,  when  no  shifting  from  insured  to  non- 
insured  industries  will  be  possible.  A  sudden  general  rise  in 
price,  with  the  subsequent  curtailment  in  consumption,  is  a 
somewhat  more  difficult  matter.  The  general  level  of  prices, 
while  depending  upon  the  various  costs  of  production,  is 
usually  assumed  to  result  in  a  normal  rate  of  profits.  But 
the  rate  of  profits  is  not  an  iron-clad  rate.  And  if  the  pro- 
ductive activity  of  capital  is  not  to  be  curtailed,  the  increase 
in  costs  would  force  the  rate  of  profits  down.  Still  more 
doubtful  is  the  ability  of  capital  to  shift  the  entire  cost  of 
insurance  upon  the  wage-worker  by  reducing  the  wages.  Here, 
again,  as  the  writer  is  somewhat  proud  to  have  pointed  out 
nearly  ten  years  ago,2  there  is  a  very  material  difference  be- 
tween the  economic  effects  of  voluntary  and  partial  insurance 
on  one  hand,  and  compulsory  and  universal  insurance  on  the 
other  hand.  It  is  easy  to  imagine  that  the  exceptional  gener- 
osity of  one  corporation  in  providing  insurance  or  pensions 
for  its  employees  would  eventually  reflect  itself  in  wages,  or 
at  least  would  tend  to  be  discounted  to  some  extent.  The 
provision  would  attract  labor  to  that  corporation.  What  is 
perhaps  more  important,  it  would  tend  to  keep  employees 
from  leaving  that  corporation,  and  in  a  rising  wage-market 
(following  a  rising  price-market)  that  would  keep  the  wages 
of  that  particular  corporation  at  a  lower  average  level.  But 
if  a  universal  compulsory  system  is  introduced  by  law,  the 
effect  would  be  decidedly  different.  The  effort  to  shift  the 
employer's  contribution  back  to  the  wages  could  only  be  suc- 
cessful if  the  wage-working  class,  as  a  whole,  would  permit 
a  sudden  reduction  of  their  standard  of  life.  Since  the  force- 
ful influence  of  that  standard  upon  the  wage  level  is  now 
frankly  recognized,  such  a  result  would  be  unthinkable.  The 
working  class  may  not  always  be  strong  enough  to  gain  an 
increase  of  standard,  but  an  effort  to  reduce  it  meets  violent 
opposition,  and  is  usually  futile. 

2  Journal  of  Political  Economy,  June,  1904,  pp.  366-68. 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      493 

In  fact,  the  resistance  of  a  definite,  well-established  stand- 
ard is  so  great  that  it  is  safe  to  assume  a  tendency  to  shifting 
in  the  opposite  direction.  Even  in  so  far  as  the  workingman 
is  forced  to  contribute  to  a  compulsory  scheme,  his  tendency 
is  to  consider  as  his  true  wages  the  amount  he  actually  re- 
ceives after  all  deductions  have  been  made.  The  energetic 
protests  made  by  the  radical  French  workingmen  against  their 
contributions  at  the  time  the  old-age  insurance  system  was 
introduced,  are  a  sufficient  guarantee  that  the  efforts  of  the 
working  class  will  be  strained  to  the  utmost  to  preserve  the 
existing  standard  in  the  face  of  numerous  reductions  for  social 
insurance.  Nevertheless,  it  is  not  at  all  a  matter  of  indiffer- 
ence as  to  who  originally  is  charged  with  the  cost.  At  best 
the  tendencies  in  the  shifting  and  incidence  of  the  cost  of 
social  insurance  which  have  just  been  indicated,  work  imper- 
fectly. No  shifting  takes  place  absolutely  automatically  with- 
out meeting  opposition,  and  without  losing  some  part  of  its 
momentum.  It  is  much  easier  for  the  working  class  to  resist 
the  employer's  effort  to  shift  the  cost  upon  them,  than  to 
try  to  shift  the  cost  upon  the  employers.  And  for  this  reason 
that  the  adjustment  can  never  be  perfect,  it  is  extremely  im- 
portant to  place  the  cost  in  the  very  beginning  upon  that 
class  which  can  best  afford  it.  But  in  the  final  analysis,  it  is 
from  the  fund  of  rent,  interest,  and  profit  that  the  largest 
part  of  the  cost  is  paid. 

Quite  recently  a  new  argument  against  social  insurance 
has  been  made,  which  deserves  special  consideration,  because 
it  found  the  support  of  such  tried  and  convinced  advocates 
of  the  rights  of  labor  as  are  the  Webbs  of  England.  In  their 
extremely  interesting  and  suggestive  monograph  on  Preven- 
tion of  Destitution,  the  Webbs  advance  a  conclusion  that  in- 
surance at  best  is  only  a  necessary  evil.  That  it  does  not  even 
undertake  to  prevent  the  frequency  of  accidents,  or  to  de- 
crease the  amount  of  idleness,  but  simply  doles  out  pittances 
after  the  accident  has  occurred  or  the  man  has  been  thrown  out 
of  work.  That,  therefore,  it  is  not  at  all  a  radical  cure,  but 
simply  a  method  of  symptomatic  treatment.  In  writing  their 
book,  the  Webbs  had  their  own  specific  remedies  for  handling 
the  problem  of  poverty  in  England  in  view,  and  the  chapter 
of  their  work  which  is  devoted  to  insurance  is  especially 
directed  against  certain  details  of  Lloyd  George 's  plan.  These 


494  SOCIAL  INSURANCE 

detailed  criticisms  need  not  be  considered.  In  fact  the  force 
of  many  of  them  may  be  readily  admitted.  But  the  charge 
that  insurance  is  not  prevention,  and,  therefore,  less  impor- 
tant, is  not  altogether  a  just  one.  It  must  be  met  here,  because 
similar  statements  are  not  seldom  heard  in  the  United  States 
in  the  course  of  the  discussions  of  the  compensation  movement. 
' '  What  labor  needs  is  not  the  payment  of  weekly  benefits  for 
lost  lives  or  limbs,  but  the  prevention  of  these  disabling  and 
maiming  accidents/ '  sounds  very  convincing,  and  in  a  meas- 
ure rings  true — but  in  a  measure  only.  It  is  not  true  that 
insurance  has  failed  to  exercise  an  influence  towards  the  pre- 
vention of  just  these  emergencies  against  which  it  under- 
takes to  protect  financially.  On  the  contrary,  in  connection 
with  each  efficient  insurance  institution,  there  developed  an 
organized  effort  at  prevention.  Accident  compensation  and 
insurance  has  stimulated  scientific  accident  prevention  in  Ger- 
many on  a  very  large  scale,  each  industry  bending  its  col- 
lective effort  to  exercise  pressure  upon  the  slovenly  and  care- 
less employer.  In  the  United  States  it  has  been  claimed  that 
fire  insurance  has  exercised  a  greater  influence  upon  preven- 
tion than  any  other  factor.  In  the  country  possessing  the 
most  complete  system  of  sickness  insurance — Germany — the 
activity  of  the  system  in  curing  diseases  is  equally  exten- 
sive as  the  distribution  of  sick-benefits,  and  from  the  point  of 
view  of  national  health  is  perhaps  even  more  important. 
The  excellent  work  done  by  German  invalidity  institutes  in 
treatment  of  tuberculosis  and  other  chronic  ailments  has 
been  referred  to.  And  the  close  connection  of  unemploy- 
ment insurance  schemes  with  the  labor  exchanges  has  ad- 
mittedly exercised  a  benevolent  influence  upon  reduction  of 
unemployment  within  the  limited  sphere  of  their  activity. 

But  the  main  objection  to  the  criticism  of  the  Webbs  is 
the  injustice  of  any  comparison  between  prevention  and  in- 
surance. Prevention  deals  with  the  social  factors  of  acci- 
dents, unemployment,  etc.,  while  insurance  deals  with  the 
individual  victim  of  these  conditions.  They  present,  there- 
fore, two  distinct  social  efforts.  The  Utopian  possibility  of 
preventing  all  accidents  and  all  disease  in  the  dim  future 
offers  no  remedy  to  the  individual  or  family  already  thrown 
out  of  its  normal  run  of  life  by  an  accident  or  disease.  More- 
over, no  matter  how  careful  and  exact  the  regulation  of  in- 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      495 

dustrial  processes  or  of  the  general  standards  of  public 
hygiene  might  become,  it  is  doubtful  if  all  dangers  will  ever 
be  eliminated,  as  it  is  doubtful  if  ever  within  reasonable 
limits  will  come  a  time  when  no  human  being  will  step  off 
the  car  in  the  wrong  way,  or  fall  off  the  ladder,  or  receive 
a  rupture  from  overstrain,  or  light  a  cigarette  without  remem- 
bering to  blow  out  the  match — a  time  when  there  will  be 
no  pneumonia  or  cancer  or  rheumatism — so  that  insurance 
against  them  will  be  altogether  unnecessary. 

If  the  strictures  raised  by  the  Webbs  represent  a  certain 
skepticism  in  regard  to  the  sufficiency  or  insufficiency  of  the 
insurance  method — a  skepticism  in  itself  productive  of  useful 
results, — other  writers  have  brought  much  graver  charges 
against  social  insurance, — that  the  protection  thus  granted 
destroys  the  sense  of  watchfulness  and  the  independent  spirit 
of  the  working  class,  and  actually  increases  the  sum-total 
of  economic  disasters  against  which  it  aims  to  protect.  Per- 
haps the  basis  of  this  charge  is  too  often  a  partisan  considera- 
tion for  the  interests  of  the  employers,  to  require  a  very  pro- 
found refutation.  It  is  evidently  impossible  to  bring  this 
charge  against  the  organization  of  sickness,  invalidity,  or  old- 
age  insurance  or  widows'  pensions.  It  is  difficult  to  imagine 
that  the  workman  might  commit  indiscretion  of  diet  or  ex- 
posure just  because  of  the  insurance  against  sickness.  But 
the  argument  has  been  extensively  used  in  connection  with 
accident  compensation  or  insurance  and  unemployment  bene- 
fits, and  was  already  considered  in  connection  with  these 
topics.  It  is  only  necessary  to  point  out  that  the  same  argu- 
ment is  applicable  with  even  greater  force  to  fire  insurance 
and  other  forms  of  property  insurance,  and  yet  it  is  but 
rarely  advanced  as  a  proof  of  its  uselessness  or  harmfulness. 
That  a  certain  force  attaches  to  the  argument  will  be  readily 
admitted.  But  it  leads  only  to  definite  appropriate  regula- 
tions, and  not  at  all  to  a  condemnation  of  the  system.  Fire 
insurance  companies  guard  themselves  against  this  additional 
danger  by  strictly  prohibiting  over-insurance  (i.e.,  insurance 
for  a  larger  amount  than  the  actual  value  of  the  property), 
and  insisting  wherever  possible  and  necessary  upon  co- 
insurance (i.e.,  limiting  their  liability  in  such  way  that  the 
owner  of  the  property  is  not  fully  protected,  and,  therefore, 
preserves  an  economic  interest  in  the  preservation  of  the 


496  SOCIAL  INSURANCE 

property  from  destruction).  These  additional  precautions  are 
unnecessary  in  the  case  of  social  insurance,  for  not  one  ex- 
isting system  permits  overinsurance  or  even  full  insurance. 
Even  disregarding  the  physical  pain  of  accidents,  no  social 
insurance  system  of  any  one  of  the  five  branches  grants  any- 
thing near  the  full  amount  of  loss.  The  insured  workman, 
therefore,  retains  a  real  interest  in  the  preservation  of  his 
health  or  life  or  employment. 

But  the  most  damaging  argument  in  the  opinion  of  many 
is  the  charge  that  social  insurance  not  only  increases  the 
actual  hazard,  but  vastly  more  stimulates  the  simulation  of 
accidents  or  disease  or  unemployment;  that  it  encourages 
the  professional  mendicant,  demoralizes  the  entire  working 
class  by  furnishing  an  easy  reward  for  malingery.  For  evi- 
dance  supporting  that  charge,  American  writers  and  speakers 
of  late  point  to  the  pamphlet  of  Dr.  Friedensburg,  which  was 
translated  by  opponents  of  social  and  especially  state  insur- 
ance, and  widely  circulated  throughout  the  United  States. 
"  Pension  hysteria  "  is  claimed  to  be  the  scourge  of  the  Ger- 
man working  class  as  a  result  of  twenty-five  years'  experience 
with  social  insurance  systems.  Again  Dr.  Friedensburg  may 
be  quoted,  not  because  this  chapter  is  intended  as  a  special 
refutation  of  his  now  famous  attack,  but  because  scarcely 
any  German  writer  has  dared  to  approach  him  in  the  energy 
of  the  language  used. 

"  Insurance,"  says  he,  "  has  been  the  very  factor  which 
has  led  to  universal  degeneration  and  demoralization."3 
This,  if  at  all  approaching  the  truth,  would  be  too  high  a 
price  to  pay  even  for  the  greatest  benefit  that  social  insur- 
ance can  bring. 

Naturally,  this  degeneration  and  demoralization — all  due 
to  the  desire  to  obtain  compensation  and  benefits  through 
malingery  and  fraud,  is  very  difficult  to  establish  statistically. 
The  citing  of  the  amount  of  litigation  under  social  insurance 
laws  is  not  very  conclusive,  one  way  or  the  other.  There  are 
many  points  of  dispute  under  any  insurance  system — how  long 
did  the  disability  last,  what  is  the  degree  of  disability,  what 
is  the  proper  amount  of  compensation,  etc.  The  law  recog- 
nizes that  disputes  are  inevitable,  and  provides  a  special 
machinery  for  their  settlement.  If  there  are  fraudulent  cases, 
8  Loo.  cit.,  p.  46. 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      497 

most  of  them  must  remain  undiscovered.  Every  argument  in 
proof  of  malingery  is  usually  supported  by  quotations  of  dis- 
covered "  horrible  examples."  The  question  remains,  how 
far  are  they  typical?  As  to  that,  only  the  impressions  of 
persons  familiar  with  the  situation  can  be  relied  upon.  As 
to  these  expressions,  a  vast  variety  of  opinions  exists.  It  has 
been  asserted  but  too  often  that  Dr.  Friedensburg 's  opinion 
must  carry  unusual  weight,  because  of  his  long  connection 
with  the  German  Social  Insurance  System  in  his  high  admin- 
istrative capacity  as  President  of  the  Senate  of  "  Reichver- 
sicherungsamt  "  (Imperial  Insurance  Office).  But  perhaps 
this  very  close  connection  in  face  of  an  existing  bias  has 
really  made  him  an  altogether  prejudiced  witness.  In  his 
official  capacity,  he  was  brought  into  contact  with  the  ab- 
normal, the  exceptional,  requiring  decisions  of  the  highest 
jurisdiction,  rather  than  with  the  vast  majority  of  normal 
cases  which  are  settled  without  any  noise  or  friction. 

As  the  writer  of  these  lines  has  indicated  elsewhere,4  ' '  nerv- 
ous physicians  and  sensitive  district  attorneys  sometimes  get 
into  that  frame  of  mind."  All  the  world  is  not  suffering 
from  dangerous  illness  and  all  people  are  not  felons  and 
murderers,  just  because  the  physician  sees  ill-health  from 
morning  till  night,  and  the  courts  deal  with  criminals  only. 

Of  course,  there  are  cases  of  malingery,  of  deliberate  fraud, 
of  simulation  of  injuries.  The  prevention  of  malingery  and 
fraud  presents  a  definite  administrative  problem,  which  must 
be  met  by  appropriate  methods  of  administrative  control. 
Unfortunately  limitations  of  space  have  made  the  considera- 
tion of  these  numerous  problems  of  good  administration  alto- 
gether impossible  in  this  study.  This  important  work  must 
be  undertaken  independently.  But  malingery  and  fraud  are 
not  specific  faults  of  social  insurance.  They  occur  in  con- 
nection with  every  form  of  insurance.  From  deliberate  arson 
to  exaggeration  of  loss  under  fire  insurance,  from  murder  of 
wives  or  children  under  life  insurance,  which  led  to  special 
legislation  against  overinsurance  of  children,  there  is  quite 
a  distance  to  the  crime  of  a  workingman  who  will  insist  upon 
prolonging  his  period  of  disability  after  accident  or  disease, 
at  some  one  else's  expense,  in  order  to  take  advantage  of  an 
additional  vacation. 

4  Political  Science  Quarterly,  June,  1912,  p.  313. 


498  SOCIAL  INSURANCE 

Commercial  accident  and  sickness  insurance  can  more  than 
match  the  record  of  any  social  insurance  system  in  that  direc- 
tion, for  it  has  not  the  legalized  methods  of  control  at  its 
disposal  which  usually  constitute  an  important  feature  of 
the  latter.  Nor  does  any  insurance  hold  a  monopoly  of 
fraudulent  claims.  The  amount  of  perjury  of  injured 
plaintiffs,  employers,  witnesses,  and  even  medical  experts 
which  liability  litigation  develops,  is  proverbial.  For  one 
thing,  the  amount  at  stake  is  usually  very  much  greater. 
"Whenever  a  damage  suit  is  begun,  the  temptation  to  exag- 
geration is  great,  even  if  it  be  a  suit  for  a  fabulous  sum  for 
alienation  of  affections,  or  for  breach  of  promise  to  marry. 
Every  fraud  or  exaggeration  on  the  part  of  the  injured 
claimant  in  compensation  cases  can  be  more  than  duplicated 
by  the  efforts  of  the  employing  interests  to  escape  payments, 
or  reduce  their  amount. 

There  are  a  great  many  arguments  of  a  more  general  char- 
acter that  are  often  brought  forth  against  the  program  of 
social  insurance.  They  are  appeals  to  general  political  or 
social  theory,  and  are  usually  of  such  an  abstract  nature  that 
their  proper  consideration  would  necessitate  a  complete  over- 
hauling of  all  the  disputed  points  in  political  and  social  sci- 
ence— an  enormous  and  possibly  praiseworthy  undertaking 
of  a  lifetime,  but  not  of  much  value  in  consideration  of  very 
practical  social  needs. 

There  is  the  argument  of  the  proper  limits  of  state  activity, 
of  the  great  advantages  of  self-help  over  mutual  help,  of 
the  necessity  to  preserve  the  spirit  of  individual  economic  in- 
dependence, and  the  danger  of  breaking  the  backbone  of  our 
working  class  by  teaching  it  to  rely  upon  the  government,  and 
so  on  and  so  forth.  The  more  one  studies  the  extensive  Euro- 
pean literature  on  these  topics  produced  two  or  three  decades 
ago  when  these  problems  were  up  for  discussion  in  Europe, 
the  less  one  feels  the  necessity  of  repeating  the  time-worn 
arguments.  History  has  answered  these  questions  clearly  in 
Europe,  and  its  voice  is  heard  at  present  in  the  United  States 
sufficiently  well. 

There  is  one  interesting  point,  however,  which  has  already 
been  mentioned  in  connection  with  the  problem  of  accident 
compensation,  but  which  has  a  general  application  to  the 
whole  field  of  social  insurance:  That  is  the  general  effect  of 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      499 

this  social  policy  upon  the  relations  between  the  various 
classes  into  which  modern  society  is  divided  by  powerful 
economic  forces.  Social  insurance  is  often  advocated  as  a 
measure  of  social  peace  and  for  the  very  same  reasons  is 
violently  attacked  by  others.  It  is  supposed  to  teach  the 
gospel  of  "  identity  of  interests  of  labor  and  capital."  For 
this  reason  mild  social  reformers  in  this  country  have  re- 
cently been  converted  to  the  gospel  of  social  insurance,  while 
radicals  in  the  labor  movement  have  bitterly  attacked  it  as  an 
invidious  method  to  devitalize  the  forces  of  the  coming  social 
revolution. 

Does  social  insurance  produce  this  effect,  an  effect  benevolent 
or  pernicious  according  to  one's  point  of  view?  "  It  was  be- 
lieved, "  says  Dr.  Friedensburg,  "  that  the  workingmen  might 
be  bought  off,  so  to  speak,  from  revolution/'  But  the  results 
did  not  justify  this  expectation.  "  The  institution  which  was 
designed  to  cut  the  ground  from  under  the  revolutionary 
party  is  now  made  to  promote  it."5  Again,  "  One  of  these 
ethical  effects  was  to  be  a  reconciliation  of  social  antitheses, 
and  a  restoration  of  International  Peace.  The  actual  result 
in  this  respect  has  been,  unfortunately,  utter  failure. ' ' 6 

The  situation,  therefore,  appears  to  be  somewhat  uncertain. 
Social  insurance  is  good  because  it  is  conducive  to  social 
peace.  It  is  bad  because  it  weakens  the  forces  of  the  social 
revolution.  It  has  succeeded  in  accomplishing  the  result, 
and  again  it  has  dismally  failed.  If  it  has  failed,  then  the 
attitude  of  the  reactionaries  is  justified,  but  the  revolutionary 
elements  should  cease  objecting  to  it.  The  fact  that  both 
the  extreme  reactionaries  and  the  extreme  revolutionaries  are 
dissatisfied  with  these  general  effects  of  social  insurance  upon 
the  class  relations  in  modern  industrial  society,  surely  fur- 
nishes some  wholesome  food  for  reflection.  Here,  again,  a 
good  deal  depends  upon  the  definition  of  our  terms. 

Has  social  insurance  succeeded  in  realizing  ' '  social  peace  ' '  ? 
That  depends  upon  what  is  meant  by  social  peace.  Does  it 
stem  the  onward  march  of  the  social  revolution?  That  de- 
pends upon  what  your  definition  of  the  social  revolution  is. 
If  the  original  hope  was  that  it  might  destroy  the  socialist 
movement,  the  growth  of  Social  Democracy  in  Germany  or 
any  other  country,  the  palpable  historical  fact  is  that  social 
6  loo,  wt.,  p,  24,  •  l/ov,  cit.,  p.  58f 


500  SOCIAL  INSURANCE 

insurance  did  not  succeed  in  accomplishing  that.  If  by  social 
peace  be  understood  a  subservient  working  class  willing  to 
leave  the  political  and  economic  power  in  the  hands  of  the 
employers,  and  unable  to  use  its  own  strength  in  furthering 
the  necessary  economic  reorganization  of  society — then,  that 
social  peace  has  certainly  not  accomplished. 

Why  should  social  insurance  have  had  any  such  effect  of 
developing  in  the  wage-workers  a  canine  fidelity  and  attach- 
ment to  their  employers  ?  After  all,  the  growth  of  compulsory 
social  insurance  proceeded  under  the  coercive  pressure  of 
state  authority,  usually  in  face  of  an  obstinate  opposition  of 
the  employing  class.  But,  nevertheless,  social  insurance  was 
not  without  its  far-reaching  social  results.  And  these  results 
are  of  a  twofold  character,  depending  both  upon  the  economic 
and  political  aspects  of  this  legislation.  In  so  far  as  social 
insurance  is  able  to  prevent  the  extremes  of  human  destitu- 
tion, it  will  tend  to  deprive  the  movement  of  the  wage-working 
class  towards  a  brighter  future,  of  that  element  of  utter 
despair,  born  of  actual  destitution,  which  is  a  mighty  danger- 
ous, double-edged  weapon,  especially  when  used  in  wide  social 
conflicts.  Such  conflicts,  born  of  despair,  are  more  blood- 
thirsty, more  destructive,  and  less  productive  of  positive 
results  than  intelligent  collective  action  for  the  common  weal. 
That  view  of  social  progress  is  certainly  misanthropic  which 
can  see  no  better  moving  force  to  collective  action  than  the 
despair  of  unemployment,  disease,  and  underfeeding.  And 
on  the  political  side,  social  insurance  is  a  powerful  object 
lesson  of  the  reality  of  the  new  concept  of  the  state  as  the 
instrument  of  organized  collective  action,  rather  than  of  class 
oppression,  the  concept  of  the  future  state  in  the  making, 
rather  than  of  the  state  in  the  past.  As  social  insur- 
ance is  the  creature  of  the  state — the  "  benevolent  "  auto- 
cratic state  in  some  cases,  but  more  frequently  of  the  modern 
democratic  state — it  has  had  the  effect  of  establishing  much 
more  peaceable  relations  between  the  state  and  the  working 
class,  in  so  far,  that  is,  as  the  state  is  truly  democratic.  If  it 
does  not  have  that  effect  in  Germany  or  in  Russia  it  is  because 
there  is  no  democratic  state. 

Of  course,  in  that  political  philosophy  which  provides  no 
place  at  all  for  the  organized  state,  a  favorable  reception  to 
social  insurance  on  the  score  of  the  results  outlined  above 


SOCIAL  IMPORT  OF  SOCIAL  INSURANCE      501 

cannot  be  expected.  But,  after  all,  one  is  justified  in  assum- 
ing that  that  attitude  does  not  represent  the  predominating 
opinion  of  the  working  class. 

The  dangerous  "  doctrine  of  the  class  struggle  "  may 
frighten  the  timid.  Its  existence  impresses  itself  too  strongly 
upon  modern  social  life  to  be  lightly  denied.  But  class  strug- 
gle does  not  necessarily  mean  class  war.  As  society  grows  in 
complexity,  the  social  antagonisms  assume  a  more  civilized 
aspect.  Just  as  love  tragedies  and  accounts  of  personal  honor 
are  settled  now  in  courtrooms  with  due  regard  to  criminal 
and  civil  procedure,  rather  than  the  picturesque  encounters 
with  long-barreled  pistols  in  the  distant  wood  at  dawn  of  day 
— so  class  struggles  may  receive  their  peaceful  solution  by  tak- 
ing the  modern  road  from  the  ballot-box  to  the  legislative  halls 
of  the  nations.  If  such  orderly  social  progress,  untiring  in  its 
purpose,  may  be  designated  as  ' '  social  peace  ' '  only  the  advo- 
cate of  revolution  for  revolution's  sake  can  object  to  any 
force  that  tends  to  bring  it  about.  In  that  sense,  social  in- 
surance does  tend  to  bring  about  social  peace — the  peace 
of  progress,  not  the  peace  of  stagnation  and  death. 

More  than  that — there  can  be  no  peaceful  advance  as  long 
as  the  pressing  problems  of  human  destitution  remain  un- 
solved, and  nothing  short  of  a  comprehensive  national  system 
of  social  insurance  against  all  the  factors  of  poverty,  such 
as  death,  sickness,  accident,  invalidity,  old  age,  or  unemploy- 
ment, offers  even  a  semblance  of  an  immediate  solution. 


BIBLIOGRAPHICAL  NOTE 

The  intention  to  prepare  a  working  bibliography  of  the  entire  field  of 
Social  Insurance  was  abandoned  after  some  deliberation  because  of  the 
magnitude  of  the  undertaking.  The  addition  of  a  small  selected  bib- 
liography would  have  simply  repeated  what  has  been  done  by  others. 
It  seems  sufficient  to  give  a  list  of  the  most  important  sources  and 
bibliographies  to  which  the  serious  student  must  turn  and  which  he  must 
learn  to  handle  if  he  intends  to  pursue  his  studies  further  in  this  very 
fruitful  field. 

The  works  such  a  student  must  familiarize  himself  with  in  the  be- 
ginning are :  Workingmen's  Insurance  in  Europe,  by  DR.  LEE  K.  FRANKEL 
and  MR.  M.  M.  DAWSON  (New  York  Charities  Publication  Committee, 
1910),  and  The  Twenty-fourth  Annual  Report  of  the  U.  8.  Commissioner 
of  Labor,  entitled  "  Workmen's  Insurance  and  Compensation  Systems  in 
Europe"  (Washington,  1911,  2  vols.),  which  represents  the  most  com- 
plete collection  of  materials  and  statistics  for  the  eleven  most  important 
countries  of  Europe.  In  German  a  similar,  even  more  voluminous  com- 
pilation exists,  published  under  the  editorial  management  of  DR.  GEORG 
ZACHER,  Die  Arbeiterversicherung  im  Auslande  (5  vols.,  1898-1910).  In 
view  of  the  protracted  period  of  publication,  not  all  the  material  is 
equally  up  to  date  (though  this  is  partly  corrected  by  numerous  sup- 
plements ) ,  but,  on  the  other  hand,  it  presents  the  advantage  of  contain- 
ing a  good  deal  of  very  valuable  historical  material.  Many  acts  are 
reproduced  in  the  original  and  translation. 

Of  serial  publications  the  most  important  are:  The  proceedings  of  all 
the  International  Congresses  of  Social  Insurance  (formerly  Congres  In- 
ternationaux des  Accidents  du  Travail,  subsequently  transformed  into 
Congres  Internationaux  des  Assurances  Sociales ) ,  beginning  with  the 
first  one  held  in  Paris,  1889,  and  of  which  the  next  one  will  be  held  in 
Washington  in  1915.  No  less  valuable  is  the  entire  series  of  the  period- 
ical publications  of  the  same  organization,  begun  in  1890  as  the  Bulletin 
du  Comite  Permanent  des  Congres  Internationaux  des  Accidents  du 
Travail,  and  now  known  as  the  Bulletin  des  Assurances  Sociales.  It  is 
now  in  its  twenty-fourth  year,  and  contains  an  enormous  volume  of 
legislative,  statistical,  and  historical  material. 

Theoretically,  the  ideal  way  of  studying  the  legislation  enacted  is  in 
the  official  publications  of  the  various  countries.  But  this  is  extremely 
cumbersome,  and  but  seldom  possible  to  any  one.  Of  very  great  assist- 
ance will  be  the  collected  work  of  PROFESSOR  MAURICE  BELLOM,  Les  lois 
d'assurance  ouvriere  a  Vetranger  (9  vols.,  Paris,  1892-1906),  and  the 
official  annual  compilation  of  the  Belgian  Labor  Bureau,  Annuaire  de  la 
legislation  du  Travail,  from  1897  to  date.  The  Bulletin  of  the  Inter- 
national Labor  Office  (since  1908),  published  in  English,  German,  and 
French  editions,  contains  texts  of  many  important  acts,  lists  the  less 
important  ones,  and  gives  annually  a  comprehensive  international  review 
of  legislation. 

Of  the  American  publications,  both  for  European  and  American  con- 
ditions, the  most  important  are : 

503 


504  BIBLIOGRAPHICAL  NOTE 

The  Bulletin  of  the  U.  8.  Department  of  Labor,  then  Bureau  of  Labor 
and  now  Bureau  of  Labor  Statistics.  This  contains  many  translations 
of  foreign  acts,  reprints  of  American  acts,  special  studies,  annual  re- 
views, etc. 

The  Publications  of  the  American  Association  for  Labor  Legislation, 
appearing  since  1911  as  American  Labor  Legislation  Review.  This  ma- 
terial is  especially  valuable  for  the  study  of  the  American  Compensation 
movement. 

The  current  of  social  activity  in  this  field  is  so  swift  that  strict  atten- 
tion must  be  paid  to  current  literature  if  one  is  to  keep  in  touch  with 
latest  developments.  In  addition  to  the  Bulletin  des  Assurances 
Sociales  already  referred  to,  the  following  publications  must  be  closely 
studied : 

Zeitschrift  fur  die  gesammte  Versicherungswissenschaft  (Berlin  since 
1901),  which  is  not  limited  to  Social  Insurance  but  devotes  a  rapidly 
increasing  proportion  of  its  space  to  this  branch  of  insurance  science; 
Arbeiterversorgung  (Berlin  since  1884),  Aerztliche  Sachverstdndigen- 
Zeitung  (Berlin  since  1895),  devoted  to  medical  aspects  of  social  insur- 
ance; Die  Berufgenossenschaft  (Berlin  since  1886),  dealing  mainly  with 
accident  insurance;  Monatsblatter  fur  Arbeitversicherung  (Berlin  since 
1907),  etc. 

A  very  comprehensive  list  of  the  important  articles  in  these  special 
publications,  as  well  as  in  the  general  economic  monthlies  and  quarterlies, 
may  be  conveniently  found  in  the  Zeitschrift  fur  die  gesammte  Ver- 
sicherungswissenschaft. 

In  the  English  language  there  is  hardly  any  publication  devoted  ex- 
clusively to  social  insurance;  the  general  insurance  press  has  altogether 
disregarded  this  aspect  of  insurance.  Gradually  articles  are  finding  their 
way  into  the  general  economic  reviews  of  England  and  the  United  States. 
For  current  news,  especially  as  to  the  American  movement,  The  Survey 
as  yet  remains  the  best  source,  and  of  all  the  American  insurance  papers, 
The  Market  World  and  Chronicle  is  perhaps  the  only  one  in  which  an 
intelligent  interest  in  social  insurance  problems  may  be  noticed.  For  a 
current  fairly  accurate  reference  source  as  to  pending  American  legisla- 
tion, the  Weekly  Underwriter  may  be  recommended. 

For  the  specialist,  the  primary  sources  of  information  must  remain  of 
greatest  value.  Wherever  social  insurance  institutions  exist,  reports  are 
almost  always  published.  The  serial  and  other  publications  of  the  vari- 
ous European  Bureaus  of  Labor  also  contain  much  valuable  material. 
A  bibliography  of  all  these  sources  is  rather  a  formidable  affair.  For 
the  eleven  most  important  countries,  however,  the  titles  of  all  the  im- 
portant publications  may  be  found  again  in  the  Twenty-fourth  Annual 
Report  of  the  United  States  Commissioner  of  Labor.  In  the  United 
States  they  are  not  always  easily  reached;  but  the  Library  of  Congress, 
the  Public  Library  of  New  York  City  and  of  a  few  other  large  cities,  and 
of  some  of  the  larger  universities  contain  a  good  deal  of  this  material. 
For  lack  of  the  original  sources,  the  Statistical  Annuals  of  the  different 
countries  are  often  helpful.  In  several  countries  "  general  statistical 
series"  are  published  (e.g.,  Germany,  Austria.  France,  Denmark)  and 
these  should  be  looked  into  for  valuable  material  on  problems  directly 
or  indirectly  connected  with  social  insurance.  In  addition,  many  Labor 
Bureaus  carefully  investigate  conditions  in  other  countries,  and  sometimes 
the  most  accurate  and  painstaking  studies  of  conditions  in  one  country 
may  be  found  in  the  official  publications  of  other  countries. 


BIBLIOGRAPHICAL  NOTE  505 

Until  recently  American  State  Labor  Bureaus  did  not  pay  much  atten- 
tion to  social  insurance  topics.  Within  recent  years,  however,  a  growing 
volume  of  material  on  industrial  accidents  may  be  found  in  the  publica- 
tions of  some  State  Labor  Bureaus,  primarily  those  of  New  York,  Massa- 
chusetts, Wisconsin,  and  Minnesota.  Of  greater  value  are  the  publica- 
tions of  the  special  governmental  institutions  which  were  organized  for 
consideration  of  these  problems:  first,  the  temporary  commissions  for 
investigation  of  accident  compensation  and  preparation  of  bills,  and 
secondly,  the  special  permanent  bodies  created  for  administration  of  the 
acts — Industrial  Accident  Boards,  State  Insurance  Commissions,  and 
Industrial  Commissions.  As  the  technical  insurance  problems  are  de- 
veloping, the  offices  of  Insurance  Commissioners  (those  dealing  with 
general  insurance  conditions  and  not  specially  with  social  insurance)  are 
forced  to  pay  more  attention  to  problems  of  social  insurance,  and  their 
reports  will  also  deserve  some  study;  also  the  Proceedings  of  the  Associa- 
tion of  Insurance  Commissioners.  In  addition  a  growing  volume  of  inter- 
esting literature  emanates  from  the  offices  of  several  private  insurance 
companies,  and  various  associations  and  bureaus  in  which  many  insurance 
companies  participate  for  purposes  of  statistical  or  actuarial  co-opera- 
tion, publicity,  etc. 

Among  brief  bibliographies,  the  most  recent  one  is  published  in 
American  Labor  Legislation  Review,  Vol.  Ill,  No.  3,  pp.  287-292.  The 
little  book,  edited  by  E.  D.  BULLOCK,  Selected  Articles  on  Compulsory 
Insurance  (Minneapolis,  1912),  has  a  rather  lengthy  bibliography  (pp. 
xvii-xxxv)  consisting  mainly  of  popular  articles  in  American  and  Eng- 
lish magazines.  More  comprehensive,  but  rather  accidental  nevertheless, 
are  the  bibliographies  issued  by  the  U.  S.  Library  of  Congress : 

( 1 )  Select  List  of  References  on  Workingmen's  Insurance.     Compiled 
by  A.  P.  C.  GRIFFITH.     (Washington,  1908.) 

(2)  Select  List  of  References  on  Employers'  Liability  and  Working- 
men's  Compensation.    Compiled  by  H.  H.  B.  MEYEE,  1911. 

(3)  Select  List  of  References  on  Old- Age  and  Civil  Pensions,  1903. 

Very  comprehensive  bibliographies,  especially  as  to  official  and  statis- 
tical publications  are  contained  at  the  end  of  each  chapter  of  the  Twenty- 
fourth  Report  of  the  U.  S.  Commissioner  of  Labor.  Similar  biblio- 
graphical notes  are  found  in  all  monographs,  beginning  with  W.  T. 
WILLOUGHBY'S  Workingmen's  Insurance  (Boston,  1898),  pp.  379-386; 
F.  ROGERS  and  F.  MILLAR'S  Old-Age  Pensions  (London,  1903),  pp.  211- 
226:  J.  G.  GIBBON'S  Unemployment  Insurance,  London,  1911,  pp.  337- 
342,  etc. 

Of  foreign  bibliographies  the  most  important  are: 

( 1 )  A.  GROTJAHN  and  F.  KRIEGEL  :  Jahresbericht  uber  Soziale  Hygiene, 
Demographic  und  Medizinal  Statistik,  sowie  alle  Zweige  des  Sozialen 
Versicherungstvesen,   Jena,    1906,    published   annually,    and    devoting   a 
considerable  section  to  social  insurance. 

(2)  Bibliographie  der  Sozialen  Wissenschaften  (also  carrying  an  Eng- 
lish   title — Bibliography   of   Social   Science),   published   by    the    Inter- 
nazionale  Institut  fur  Sozial-bibliographie  in  Berlin,  and  since  1913,  by 
the  ReicJisamt  des  Innern. 

(3)  Bibliographie  der  Praxis  der  Arbeiterfrage    (Beiheft  zum  "  Ar- 
beiterfreund  " :  Organ  des  Central  Vereins  fur  das  Wohl  der  Arbeiterden 
Klassen ) . 

(4)  Bibliographies  published  by  the  Italian  Ufficio  del  Lavoro  and, 

(5)  by  the  Spanish  Instituto  de  Reformas  Sociales. 

(6)  Bibliographies  of  The  Bulletin  of  the  International  Labour  Office. 


506  BIBLIOGRAPHICAL  NOTE 

(7)  In  this  country  the  best  source  for  current  bibliography,  both 
American  and  foreign,  is  the  American  Economic  Review  (published 
quarterly  since  1911  by  the  American  Economic  Association,  and  follow- 
ing the  Economic  Bulletin  for  1908-1910),  where  the  Section  of  Insur- 
ance is  very  well  handled. 

The  specializing  student  may  profit  by  the  information  that  a  card 
catalogue  of  these,  as  well  as  all  other  special  topics,  may  be  purchased 
from  the  Card  Division  of  the  Library  of  Congress,  at  two  cents  per 
copy.  According  to  recent  information,  the  Library  possesses  at  present 
from  750  to  1,000  cards  on  various  topics  of  State  and  Social  Insurance. 


INDEX 


NOTE:  The  arrangement  of  material  in  the  book  being  almost  alto- 
gether topical,  the  Index  has  been  made  mainly  geographical,  to  enable 
the  bringing  together  of  the  information  referring  to  each  country.  To 
save  space,  duplications  in  the  Index  have  been  avoided.  For  a  full 
analysis  of  any  one  topic  it  will  be  necessary  to  refer  to  the  same  head- 
line under  many  countries. 


Accident  insurance,  advantages  of, 
134,  141;  burden  of  cost  shift- 
ing upon  government,  150; 
commercial,  136-7;  compul- 
sory, 139,  140;  in  the  United 
States,  183;  cost  of,  141; 
forms  of,  140;  mutual  insur- 
ance, 149;  objections  to  mu- 
tual, 152;  organization  of,  134- 
54;  premiums,  adjustment  to 
hazard,  154;  premiums  more 
flexible  in  private  insurance, 
153;  results,  18-20;  selection 
of  risks,  154;  state  contribu- 
tion to  cost,  150-1;  state  in- 
surance, advantages  of,  150; 
competing  with  private  insur- 
ance, 148;  various  insurance 
institutions,  comparisons  of, 
142,  147;  voluntary,  102. 

Accident  relief  systems,  private, 
163. 

Accident  statistics,  importance  of, 
84;  influence  of  day  of  week, 
79 ;  of  hour  of  day,  80 ;  meth- 
ods of,  51. 

Accidents,  industrial,  increase  in, 
83-4. 

Accumulation  of  funds,  necessary 
for  old-age  insurance,  318,  323. 

Actuarial  basis  for  old-age  insur- 
ance, 318-21. 

Adams,  T.  C.,  34. 

Age,  adjustment  of  dues  to,  in 
sick-insurance,  232 ;  influence 
of,  upon  sickness  rates,  215-6, 
228. 

Aged  persons,  occupation  of,  312; 
physical  disabilities,  307 ; 
statistics,  305. 

Aged  poor,  condition  of,  307. 


Agent's  commissions  in  accident 
insurance,  150. 

Agricultural  laborers,  compensa- 
tion of,  113-4. 

Agriculture,  industrial  accidents 
in,  113. 

Alberta,  accident  compensation, 
19;  benefit  limits,  127,  128. 

Alienated-capital  plan  of  old-age 
insurance,  333. 

Aliens,  rights  of,  under  compensa- 
tion, 200. 

American  Academy  of  Political  and 
Social  Science,  compensation 
meeting  and  report,  162. 

American  Association  for  Labor 
Legislation,  160;  efforts  for 
compensation,  161;  opinion 
concerning  compensation 
scales,  202;  uniform  accident 
schedule,  84. 

American  Bar  Association,  com- 
pensation committee,  163. 

American  compensation  laws,  criti- 
cisms of,  188-202. 

American  compensation  legisla- 
tion, 169-88. 

American  compensation  movement, 
history  of,  155-68;  causes  of, 
165. 

American  Federation  of  Labor 
compensation  bill,  198-9;  fa- 
vors benefit  features,  286; 
favors  compensation,  163. 

Amsterdam,  unemployment  insur- 
ance, 465. 

Approved  societies  in  Great 
Britain,  254. 

Arizona  compensation  act,  170; 
extent  of  application,  189; 
insurance,  183. 


507 


508 


INDEX 


Arnhem,  unemployment  insurance, 
465. 

Assessment  system,  in  sick-insur- 
ance, 228. 

Assumption  of  risk,  doctrine  of, 
91. 

Atlantic  City  Conference  on  Work- 
men's Compensation,  101. 

Atlantic  Coast  Line  R.  R.,  relief 
fund,  290. 

Attorney's  fees  in  liability  suits, 
97. 

Australasian  colonies,  old-age  de- 
pendency, 309;  old-age  pen- 
sions, 23. 

Australia,    accident  compensation, 

127. 

Invalidity  pensions,  375. 
Old-age  pensions,  368;  age,  375; 
amount  of  pensions,  376;  citi- 
zenship, 373;  income  limits, 
374;  moral  qualifications,  373, 
374;  number  of  pensioners, 
379;  property  limits,  375; 
residence,  373. 

Austria,  accidents,  industrial,  defi- 
nition of,  110;  degree  of  dis- 
ability, 65;  increase,  84;  num- 
ber, 50;  permanent  disability, 
statistics  of,  63;  rate  by  in- 
dustries, 56;  results,  60-1. 
Compensation  for  industrial  ac- 
cidents, 18,  108;  agricultural 
laborers,  114;  office  workers, 
112;  scale  of  benefits,  fatal 
accidents,  124;  orphans,  125; 
limits,  128;  temporary  dis- 
ability, 117;  waiting  period, 
119;  workmen's  contributions, 
130. 
Compensation  insurance  bycom- 

fulsory  mutual  associations, 
40,  141,  146;  full  premium 
system,  148;  sick-benefit  so- 
cieties, 118-9. 

Old-age  insurance  for  employees, 
346;  for  miners,  25,  347;  na- 
tional system  planned,  487. 

Sickness  insurance,  compulsory, 
21,  248,  249;  employer's  con- 
tributions, 260;  extent  of  ap- 
plication, 258;  funeral  benefits, 
277 ;  industrial  accidents  cared 
for,  267;  maternity  benefits, 
276;  medical  aid,  269;  rate  of 
contributions,  262;  scale  of 


benefits,  272;  salary  limits, 
258;  time  limits  for  benefits, 
265;  types  of  funds,  253. 

Sickness  statistics,  214,  215. 

Unemployment  insurance 
planned,  487. 

Unified  social  insurance  system 
planned,  487. 

Baldwin,  F.  S.,  314. 

Baltimore  and  Ohio  R.  R.,  pension 
fund,  393;  relief  fund,  291; 
sick-benefit  fund,  290. 

Basle,  unemployment  insurance, 
461,  462,  468;  compulsory  in- 
surance rejected,  474. 

Baukrankenkassen  in  Germany, 
250. 

Belgium,  accidents,  industrial,  50; 

degree  of  disability,  65. 
Compensation  for  industrial  ac- 
cidents, 19,  108;  agricultural 
laborers,  114;  commercial  em- 
ployees, 113;  scale  for  tem- 
porary disability,  117;  scale 
limits,  128;  waiting  period, 
119. 

Compensation  insurance,  volun- 
tary, 140-1;  mutual  employ- 
ers' associations,  144;  state 
insurance  fund,  135,  136;  state 
insurance  rejected,  152. 
Old-age  insurance,  compulsory 
system  planned,  487;  volun- 
tary, 22,  327;  mutual  aid  so- 
cieties, 322;  state  fund,  337; 
statistical  results,  342,  344; 
subsidies,  338. 

Old-age  pensions,  339,  368;  in- 
come limit,  374;  pension  funds 
for  miners,  25,  347;  for  rail- 
road employees,  25,  326,  348; 
Seamen's  Aid  and  Provident 
Fund,  347. 

Sickness  insurance,  compulsory 
system  planned,  249;  subsi- 
dized voluntary  system,  21, 
240;  mutual  aid  societies, 
225;  recognized  societies,  237; 
state  regulation  of,  236,  239; 
subsidies,  amount  of,  242. 
Unemployment  insurance,  465 ; 
benefits  paid,  460;  number  of 
insured,  471;  statistics,  464; 
subsidies  to  individual  sav- 
ings, 469. 


INDEX 


509 


Beneficiaries,  in  fatal  accidents, 
124. 

Benefit  scales,  insufficiency  of,  486. 

Berger,  Victor  L.,  310;  old-age 
pension  bill,  411. 

Berlin,  Germany,  unemployment 
insurance  planned,  465. 

Berne,  Switzerland,  unemployment 
insurance,  461,  462. 

Betriebskrankenkassen,  Germany, 
250. 

Beveridge,  W.  H.,  443,  448,  449, 
450,  451,  452,  453,  454,  460. 

Bismarck's  contribution  to  social 
insurance  13,  106. 

Bogardus,  Emory  L.,  76,  78,  80. 

Bologna,  Italy,  unemployment  in- 
surance, 461;  unemployment 
savings  subsidized,  469. 

Brandeis,  Louis  D.,  411,  412,  428, 
429,  430,  431. 

Brescia,  Italy,  unemployment  in- 
surance, 465. 

British  Columbia,  compensation  for 
industrial  accidents,  19,  127, 
128. 

Brooks,  John  Graham,   14,  156. 

Brothers  and  sisters,  compensa- 
tion of,  in  fatal  accidents, 
126. 

Brown,  Herbert  D.,  403. 

Building  trade  funds,  250,  252. 

Bulgaria,  accident  compensation, 
19. 

Burden  of  proof  in  liability  suits, 
102. 

Caisse  Nationale  des  Retraites 
pour  la  Vieillesse,  329,  336. 

California,  compensation  for  in- 
dustrial accidents,  commission 
appointed,  160;  compulsory 
act,  170,  181;  constitutional 
amendment,  181;  cost,  201; 
elective  act  passed,  170;  elect- 
ive act  unsuccessful,  178;  ex- 
tent of  application,  189;  in- 
surance optional,  183;  medical 
aid,  198;  misconduct,  191; 
scale  for  fatal  accidents,  195; 
scale  for  permanent  disability, 
193;  scale  for  temporary  dis- 
ability, 192;  state  insurance 
fund,  183;  state  employees, 
181;  waiting  time,  197. 
Mothers'  pensions,  436. 


Cape  of  Good  Hope,  compensation 
for  industrial  accidents,  19; 
benefit  limits,  127,  128;  office 
workers,  112. 

Capitalization  of  pensions  in  acci- 
dent compensation,  121,  122. 

Carnegie  Relief  Fund,  395. 

Carpenters  and  Joiners,  Amal- 
gamated Society  of,  old-age 
insurance,  391. 

Carr,  C.,  358. 

Cassa  Nazionale  de  Previdenza  per 
la  Invalidita  e  per  la  Vec- 
chiaia,  337. 

Casualty  insurance  companies, 
142;  influence  upon  results  of 
elective  acts,  180;  sickness 
insurance  by,  295. 

Chapin,  R.  C.,  31,  32,  40. 

Charity  and  old-age  dependency, 
316. 

Chicago,  Burlington  &  Quincy  R. 
R.,  sick-benefit  funds,  290. 

Chicago  &  Northwestern  R.  R., 
pension  funds,  394. 

Child  labor  due  to  orphanage,  415. 

Children's  pensions  in  fatal  acci- 
dents, 125. 

Class  struggle  and  social  insur- 
ance, 500-1. 

Code  Civil,  87-8. 

Cologne,  Germany,  unemployment 
insurance,  461,  462. 

Colorado ,  compensation  commis- 
sion appointed,  160;  mothers' 
pensions,  436. 

Coman,    K.,    388. 

Commercial  employees,  accident 
compensation  for,  112. 

Communal  sick-insurance,  250, 
252. 

Compensation  for  industrial  acci- 
dents, advantages  of,  105-6; 
burden  of  cost,  129;  compul- 
sory in  the  United  States, 
175;  same,  constitutional  dif- 
culties,  181;  cost,  179,  201; 
extent  of  application,  100, 
189;  funeral  benefits,  129; 
history,  100;  insurance,  140; 
laws  in  Europe,  108;  limited 
to  hazardous  industries,  115; 
limits  of  benefits,  127,  128; 
lump-sum  payments,  121;  nor- 
mal provisions,  133;  present 
status,  27;  private  schemes, 


510 


INDEX 


163-5;  rights  of  parents,  125- 
6;  security  of  payment,  135. 

Compulsion  in  social  insurance. 
13. 

Compulsory  insurance,  incidence 
of  cost,  492. 

Compulsory  old-age  insurance,  see 
Old-age  insurance,  compulsory. 

Compulsory  sick-insurance,  see 
Sick-insurance,  compulsory. 

Confederation  Generate  du  Travail, 
opposed  to  compulsory  old- 
age  insurance  in  France,  365. 

Congresses,  international,  of  Social 
Insurance,  16. 

Connecticut,  compensation  for  in- 
dustrial accidents,  commission 
appointed  in  1907,  159;  com- 
mission of  1911,  160;  extent 
of  application,  189,  190;  in- 
surance, optional,  183;  intoxi- 
cation bar  to  benefits,  191; 
law,  170. 

Savings-bank  deposits,  41-2. 
Teachers'  pensions,  399. 

Constitutional  amendments  for 
compulsory  compensation, 
181 ;  difficulties  in  compensa- 
tion acts,  172. 

Contributory  negligence,  91. 

Crises,  cause  of  unemployment, 
442. 

Croatia,  Austria,  territorial  em- 
ployers' associations  for  acci- 
dent insurance,  146. 

Dangerous  occupations,  wages  in, 
100-1. 

Dawson,  M.  M.,  101,  182,  388. 

Dawson,  D.,  489. 

Death,  premature,  among  wage- 
workers,  413,  414;  rate  as  af- 
fected by  poverty,  220. 

Decasualization  of  labor  as  rem- 
edy against  unemployment, 
454. 

Defenses,  under  employer's  liabil- 
ity, 88;  destroyed  in  elective 
acts,  176. 

Delaware,  compensation  commis- 
sion, 100. 

Denmark,      accidents,      industrial, 

statistics,  50. 

Compensation  for  industrial  ac- 
cidents, 18,  108;  gross  negli- 
gence, 109;  fatal  accidents, 


126;    limit    of   benefits,    127, 
128;    lump    sums    for   perma- 
nent   disability,    121;    tempo- 
rary disability,  scale  for,  117; 
waiting     period,      119,      131; 
workmen's  contributions,   130. 
Insurance   for  accident  compen- 
sation, mutual  employers'  as- 
sociations,    144,    149;     volun- 
tary insurance,  140. 
Mothers'  pensions,  437. 
Old-age  dependence,   309. 
Old-age  pensions,  23,   368,   375; 
amount  of  pension,  376;  cost, 
379;     finances,     380;     income 
limits,    374;    moral    qualifica- 
tions,   372,    373;    number    of 
pensioners,      378;       residence 
qualifications,  373. 
Sick-insurance,     subsidized,     21, 
240;    cost,    245;    results,   244, 
246 ;  sick-benefit  societies,  225, 
226;   state  regulation  of,  236, 
239,   243;    subsidies,   242. 
Unemployment     insurance,     24, 
466;     benefits    granted,     468; 
number     insured,     471;     sub- 
sidies, 468. 

Devine,  E.  T.,  205,  206,  209, 
436. 

Disability,  caused  by  illness,  211; 
fixed  lists  in  accident  compen- 
sation, 121;  permanent  or 
temporary,  62;  total  or  par- 
tial, 64. 

Disease,  causes  of,  206-7;  classifi- 
cation of,  218;  economic  as- 
pects of,  205-23;  individual 
factors  of,  213;  occupation  in 
relation  to,  207,  216;  occu- 
pational, 211;  social  factors, 
211;  statistics  of,  213. 

Domestic  service,  industrial  acci- 
dents in,  112;  compensation 
for,  111. 

Dordrecht,  Netherlands,  direct  un- 
employment insurance,  469. 

Dryden,  John  F.,  419. 

Due  process  of  law  under  com- 
pensation, 173. 

Eastman,  C.,  74,  75,  95. 

Elective  compensation  acts  in  the 
United  States,  175;  affected 
by  insurance  rates,  179; 
causes  of  success  or  failure, 


INDEX 


511 


179;  influence  upon  scale  of 
benefits,  180;  reasons  for  elec- 
tion, 176. 

Emery,  J.  E.,  130,  163. 

Employee's  choice  under  elective 
plan,  177. 

Employee's  fault  as  a  cause  of  ac- 
cidents, 76. 

Employer's  choice  under  elective 
acts,  177. 

Employer's  contributions,  to  estab- 
lishment funds,  325;  tendency 
to  shifting,  493. 

Employer's  fault  as  a  cause  of  ac- 
cidents, 75. 

Employer's  Liability,  86;  under 
Common  Law,  88,  89;  effect 
upon  old-age  destitution,  308; 
insurance  of,  138. 

Employers'  mutual  associations 
for  workmen's  collective  insur- 
ance, 139.  See  Accident  in- 
surance. 

Employment  offices,  see  Labor  ex- 
changes. 

Endowment  policies,  high  cost  of, 
416. 

Erlangen,  Germany,  unemployment 
insurance,  465,  470. 

Establishment  funds,  229,  250;  in 
Germany,  251;  old-age  insur- 
ance, 324;  same  in  U.  S., 
390,  393;  sick-insurance  in 
U.  S.,  287. 

Europe,  industrial  accidents,  sta- 
tistics, 50. 

Existenzminimum,  cost  of,  488; 
theory  of  benefit  scales,  480. 

Family  relief  in  old  age,  313-4; 
family  solidarity  and  old-age 
relief,  315-6. 

Farnam,  Henry,  483. 

Fatal  accidents,  compensation  for, 
123;  lump  sums,  126. 

Fatigue  in  relation  to  disease, 
212;  to  industrial  accidents, 
77;  same,  among  men  and 
women,  81;  to  premature  old 
age,  304;  physiological  re- 
sults of,  78. 

Fellow-servant  doctrine,  90. 

Finland,  accidents,  industrial,  defi- 
nition of,  110;  compensation 
for  industrial  accidents,  18, 
108;  fatal  accidents,  age  limit 


for  children,  125;  gross  negli- 
gence, 109;  insurance  compul- 
sory, 140-1;  limits  of  benefits, 
127 ;  medical  aid  not  given, 
117;  mutual  employers'  asso- 
ciations, 144 ;  scale  of  compen- 
sation, fatal  accidents,  124; 
same  for  temporary  disability, 
117;  waiting  period,  119. 
Mutual  Aid  Societies,  state  con- 
trol of,  239. 

Fire,  destruction  of  property  by, 
482;  insurance  and  preven- 
tion, 494;  and  poverty,  494. 

Firemen's  pension  funds  in  U.  S., 
399. 

Fisher,  Irving,  220. 

Fixed  premiums  in  accident  in- 
surance, 142-3. 

Food,  high  prices  of,  as  cause  of 
underfeeding,  208. 

France,  accidents,  industrial, 
causes  of,  70;  definition  of, 
10;  degree  of  disability,  60; 
number  of,  50;  same  to  com- 
mercial employees,  112;  do- 
mestic service,  111;  various 
industries,  57. 

Compensation  for  industrial  ac- 
cidents, 18,  108;  agricultural 
laborers,  114;  commercial  em- 
ployees, 103;  fatal  accidents, 
age  limit  for  children,  125; 
limit  of  compensation,  128; 
scale  for  fatal  accidents,  124; 
scale  for  temporary  disability, 
117;  scale  for  permanent  dis- 
ability, 120;  waiting  period, 
119;  workmen's  contributions, 
130. 

Insurance  against  industrial  ac- 
cidents, 19;  mutual  employ- 
ers' associations,  144,  145 ; 
growth  of,  149;  state  insur- 
ance, 143;  administrative  ex- 
pense borne  by  state,  150; 
competition  with  private  in- 
surance, 148,  149;  state  guar- 
antee fund,  135-6;  voluntary 
insurance,  102,  140;  voluntary 
in  state  fund,  137;  workmen's 
collective,  137. 

Invalidity  pensions,  375;  defini- 
tion of  invalidity,  358,  under 
compulsory  old-age  insurance, 
360. 


512 


INDEX 


Life  insurance  for  workmen,  25, 
427. 

Miners'  pension  fund,  25,  347. 

Navigation,  pension  fund,  347. 

Old-age  dependency,   309. 

Old-age  insurance,  compulsory, 
22,  23,  346;  anticipated 
liquidation,  360;  application, 
350;  benefits,  amounts  of,  354, 
355;  benefits  table,  356;  bene- 
fits and  poor-relief,  357;  death 
benefits  under,  433;  burden  of 
cost,  354;  choice  of  insurance 
institution,  362;  conditions  of 
obtaining  pension,  357;  con- 
tributions by  employer  and 
employee,  352;  contributions, 
uniform,  353;  opposition  to, 
by  labor  unions,  365;  reserve 
funds,  investment  of,  363-4; 
results,  352;  state  contribu- 
tions, 352;  statistics,  366; 
transitory  provision,  358; 
voluntary  insurance  under 
compulsory  system,  350. 

Old-age  insurance,  voluntary, 
history  of,  329;  mutual  aid 
societies,  322;  middle  classes, 
321;  private  pension  funds, 
regulation  of,  327;  pensions 
purchasable,  table  of,  334; 
state  subsidies  introduced, 
336;  statistical  results,  341, 
342;  under  compulsory  sys- 
tem, 350. 

Old-age  pensions,  23,  368,  369; 
age,  375;  amount  of  pension, 
376;  cost,  379,  380;  finances, 
380;  history  of,  369;  income 
limits,  374;  number  of  pen- 
sioners, 378. 

Railroad  employees'  pension 
fund,  25,  326,  328,  347; 
widows',  orphans'  pensions, 
432. 

Seamen's  pension  fund,  25. 

Sickness  insurance,  21;  mutual 
aid  societies,  approved,  239; 
functions  of,  227;  growth  of, 
226;  honorary  members,  235; 
ordinary  members,  225;  regu- 
lations of,  239;  scale  of  bene- 
fits, 227;  state  regulation  of, 
236;  statistics,  231. 

Sickness  insurance,  compulsory, 


for  miners,  seamen,  and  rail- 
roads, 248,  279, 

Sickness    insurance,    subsidized, 

240;   amount  of  subsidy,  243. 

Tobacco  employees,  pension  fund, 

348. 

Unemployment  insurance,  24 ; 
compulsory,  proposed,  475 ; 
number  insured,  471;  subsidy, 
465,  466. 

Unemployment,  seasonal  fluctua- 
tions, 446;  statistics,  444. 

Fraternal  orders,  230;  membership 
of,  293;  mortality  tables,  303; 
old-age  insurance  by,  391, 
392;  sick-benefits  by,  293. 

Freiburg,  Germany,  unemployment 
insurance,  465. 

Freund,  E.,  89,  174,  178. 

Friedensburg,  F.,  484,  488,  496, 
497,  499. 

Friendly  Societies,  225;  in  British 
sick-insurance,  254. 

Funeral  benefits,  18;  under  acci- 
dent compensation,  129;  un- 
der compulsory  sick-insurance, 
277;  through  voluntary  or- 
ganizations, 225 ;  extrava- 
gance in  U.  S.,  277. 

Garrett,  S.,  358. 

Gemeindekrankenversicherung  in 
Germany,  250. 

Geneva,  Switzerland,  unemploy- 
ment insurance,  461. 

George,  Lloyd,  21,  232,  259,  263, 
273,  371,  477,  493. 

Germany,  industrial  accidents, 
agriculture,  113;  causes  of, 
70,  72,  77;  definition  of,  110; 
disability,  degree  of,  65;  in- 
crease in,  83;  number,  50; 
prevention  of,  494;  rate  by 
day  of  week,  79;  by  hour  of 
day,  80;  results  of,  58,  59. 
Industrial  accidents,  compensa- 
tion, 18,  108;  agricultural  la- 
borers, 114;  benefits  in  fatal 
accidents,  age  limit  of  chil- 
dren, 125;  benefit  limits,  128; 
scales  for  fatal  accidents,  124; 
for  permanent  disability,  120; 
for  temporary  disability,  117. 
Industrial  accident  insurance, 
assessment  system,  146-7 ;  cost 
of,  201;  compulsory,  140-1; 


INDEX 


513 


mutual  employers'  associa- 
tions, 146;  relation  to  sick- 
ness insurance,  118,  119,  130; 
workmen's  contributions,  130. 

Industrial  pension  funds,  25. 

Invalidity  insurance,  age  distri- 
bution of  pensioners,  360; 
computation  of  pensions,  359; 
definition  of  invalidity,  358; 
number  of  pensions  granted, 
359. 

Miners,  pension  funds  for,  25. 

Old-age  insurance,  compulsory, 
21,  345;  application  of  act, 
350 ;  benefits,  354,  355 ;  burden 
of  cost,  354;  conditions  for 
receiving  benefits,  357 ;  contri- 
butions, 352 ;  graded  by  wage- 
groups,  353;  investment,  363- 
4;  number  insured,  351;  or- 
ganization, 361 ;  pensions, 
average  amount  of,  358;  pre- 
ventive work  by,  361 ;  relation 
to  sick-insurance,  361 ;  retire- 
ment age,  normal,  354-5 ;  sick- 
ness pensions,  361;  sanatoria, 
361;  state  contributions,  352; 
statistical  results,  364;  transi- 
tory provisions,  357;  volun- 
tary insurance  under  compul- 
sory system,  350. 

Railroad  pension  funds,  25. 

Seamen,  pension  funds  for, 
25. 

Sick-insurance  compulsory,  248, 
249;  employers'  contributions, 
260;  extent  of  application, 
257;  funeral  benefits,  277; 
maternity  benefits,  276;  medi- 
cal aid,  269;  prevention,  494; 
proportion  of  population  in- 
sured, 231;  rates  of  contribu- 
tion, 261;  salary  limits,  288; 
sick-benefits,  272,  273;  time 
limits  of  benefits,  265;  types 
of  funds,  250-2. 

Sick-rate  among  workmen,  214. 

Social  insurance,  burden  of,  488, 
489;  cost  of,  483;  history,  15; 
state  contribution  to,  490; 
unification  of  system,  487. 

Unemployment  insurance,  24 ; 
benefits  paid,  460;  in  cities, 
465;  trade  unions,  458;  pro- 
posals for  compulsory  insur- 
ance, 475,  487. 


Unemployment,      statistics      of, 

443-4. 

Widows'  and  orphans'  insurance, 
26;  contributions,  435;  pen- 
sions, 434. 

Ghent  system  of  unemployment 
insurance,  463,  464;  general 
estimate  of,  471;  subsidies 
granted,  461,  468;  unemploy- 
ment insurance  in,  24. 

Gibbon,  J.  G.,  461,  465,  471,  475-6. 

Glasson,  W.  H.,  407. 

Government  employees,  old-age 
pensions  for,  348,  368. 

Great  Britain,  accidents,  indus- 
trial, increase  of,  84;  number, 
50. 

Accidents,  industrial,  compensa- 
tion for,  18;  commercial  em- 
ployees, 1 13 ;  domestic,  1 1 1 ;  ex- 
tent of  application,  110;  fatal 
accidents,  126;  limit  of  bene- 
fits, 127,  128;  medical  aid  not 
given,  117;  office  workers,  112; 
scale  for  disability,  117;  seri- 
ous misconduct,  109;  waiting 
period,  119. 

Accidents,  industrial,  insurance 
against,  commercial,  136;  mu- 
tual employers'  associations, 
144 ;  voluntary  insurance, 
140-1. 

Death  benefits  paid  by  friendly 
societies,  422 ;  by  trade  unions, 
422. 

Friendly    societies,    225;    actu- 
arial   insolvency,    234;    func- 
tions,   226;     membership    of, 
225;    registered,   237;    regula- 
tion of,  238;  statistics  of,  231. 
See  Sick  insurance. 
Invalidity    insurance,    definition 
of  disablement,  388.    See  Sick- 
ness insurance. 
Miners'  pension  funds,  25. 
Old-age    dependency,    statistics, 

309. 

Old-age  insurance  by  friendly  so- 
cieties and  trade  unions,  322. 
Old-age  pensions,  23,  368,  380; 
age  of  pensioning,  375;  amount 
of  pension,  377;  citizenship 
qualification,  373 ;  economic 
qualification,  374 ;  financial 
arrangements,  380;  history  of, 
371;  income  limit,  374;  moral 


514 


INDEX 


qualifications,  374;  number  of 
pensioners,  378-9;  residence 
qualification,  373;  relation  to 
pauperism,  369. 

Poor-relief,  316. 

Postal  Savings  Banks  insurance, 
25,  426. 

Sick-insurance,  compulsory,  21, 
248,  249;  benefits  paid,  273; 
burden  of  cost,  261 ;  contribu- 
tions, rate  of,  262;  extent  of 
application,  258;  maternity 
benefits,  276,  277;  medical  aid, 
269;  organization  of  funds, 
254;  organization  of  medical 
aid,  271;  post-office  depositors, 
255;  relation  to  accident  com- 
pensation, 268;  statistical  re- 
sults, 262-3. 

Sick-insurance,  voluntary, 
growth  of,  226;  benefits  given, 
227;  regulation  of  friendly  so- 
cieties, 236;  in  connection 
with  the  compulsory  sick- 
insurance  system,  259. 

Social  insurance,  compulsory 
principle  introduced,  388 ; 
state  contributions,  490;  uni- 
fication of  systems,  487. 

Unemployment  insurance,  com- 
pulsory, 24,  476-9;  benefits, 
477;  contributions,  477;  num- 
ber insured,  477;  proposals 
for,  475;  trade  union  interests 
protected,  478. 

Unemployment  insurance,  vol- 
untary, through  trade  unions, 
458;  benefits  paid,  460. 

Unemployment,  seasonal  fluc- 
tuations, 446 ;  statistics, 
444. 

Greece,  accidents,  industrial,  com- 
pensation, 18,  108;  compul- 
sory mutual  insurance,  140; 
limited  to  mining,  115;  scale 
of  benefits  for  disability,  117; 
for  fatal  accidents,  124. 
Guarantee  syndicates  in  France, 

149. 
Guild  Funds  in  Germany,  250,  252. 

Hamburg,      Germany,      unemploy- 
ment insurance  planned,  465. 
Hard,  Wm.,  436. 
Harris,  H.  J.,  86. 
Hazard  of  industry,  73. 


Hazardous  employments,  accident 
compensation  limited  to,  189. 

Health,  necessary  condition  of,  207. 

Hearts  of  Oak  Benefit  Society,  227. 

Heidelberg,  Germany,  unemploy- 
ment insurance  in,  465. 

Henderson,  Ch.  R.,  157,  158,  159, 
281,  282,  284,  288,  293,  390, 
407. 

Hilfskassen  in  Germany,   250. 

Hill,  J.  J.,  39. 

Hobson,  J.  A.,  9,  448. 

Hoffman,   F.   L.,   54. 

Hourwich,  I.  A.,  29. 

Housing  as  a  factor  of  disease, 
209. 

Hungary,      accidents,      industrial, 

definition  of,  110. 
Accidents,  industrial,  compensa- 
tion, 18,  108;  benefit  scale  for 
fatal  accidents,  124;  same,  age 
limit  for  children,  125;  tem- 
porary disability,  117;  bene- 
fit scale,  limits  of,  128;  wait- 
ing period,  119. 

Accidents,  industrial,  insurance, 
compulsory  mutual,  140,  141; 
mutual  employers'  associa- 
tions, 146;  sick-insurance  or- 
ganization, 118-9. 
Sickness  insurance,  compulsory, 
19,  248,  249;  contributions, 
262;  employers'  contributions, 
260;  extent  of  application, 
258;  funeral  benefits,  277;  in- 
dustrial accidents  compen- 
sated, 267 ;  maternity  benefits, 
276;  medical  aid,  269;  salary 
limits,  258;  sickness  benefits, 
272. 

Idaho,  mothers'  pensions,  436. 

Illegitimate  children,  rights  of 
under  compensation  acts,  200. 

Illinois,  accident  compensation, 
bill  of  1905,  158-9;  commission 
appointed,  160;  elective  act, 
169;  elective  act  accepted  by 
employers,  178;  extent  of  ap- 
plication, 189;  medical  aid, 
198;  scale  for  fatal  accidents, 
195;  scale  for  permanent  dis- 
ability, 192;  scale  for  tempo- 
rary disability,  193;  self- 
inflicted  injuries,  191;  wait- 
ing time,  197. 


INDEX 


515 


Accident  insurance,  optional  and 
private,    183;     rate    for    com- 
pensation   and    liability,    179. 
Mothers'  pensions,  436,  437. 
Workingmen's    insurance,    com- 
mission of  1905,  157. 

Immigrants'  efforts  in  sickness  in- 
surance in  U.  S.,  283. 

Industrial  accident  and  health 
insurance  in  U.  S.,  295,  296. 

Industrial  accidents,  49-68;  causes 
of,  69-85 ;  cost  of  shifting  back 
to  employer,  267-8;  nature  of 
injury,  59;  result's,  57-9;  rate 
in  various  industries,  66-7. 
See  Accidents,  industrial. 

Industrial  benefit  societies  in  U. 
S.,  286. 

Industrial  efficiency  and  old  age, 
305. 

Industrial  life  insurance,  281, 
417,  420;  annuities  sold,  391; 
392,  393;  cost  of,  420;  lapses 
under,  420,  421;  purposes 
of,  419;  statistics  in  U.  S., 
418. 

Industrial  pension  funds,  324. 

Innungskrankenkassen  in  Ger- 
many, 250. 

Institute  Nacionale  de  Prevision, 
in  Spain,  338. 

Insurance  versus  savings,  8. 

International  Association  for  La- 
bor Legislation,  211. 

International  Harvester  Company, 
accident  compensation,  private 
voluntary  scheme,  163,  164; 
scale  of  benefits,  165;  pension 
fund,  395,  396. 

Interstate  commerce,  compensation 
bill  for,  172,  198. 

Interstate  competition,  an  influ- 
ence in  American  compensa- 
tion legislation,  172. 

Invalidity  problem,  308;  insurance 
against,  299,  358,  375. 

Iowa,  accident  compensation  com- 
mission appointed,  160;  com- 
pulsory insurance,  183;  extent 
of  application,  189;  intoxica- 
tion, 191;  medical  aid,  197; 
scale  of  benefits  for  fatal  ac- 
cidents, 196;  scale  for  dis- 
ability, 193. 
Mothers'  pensions,  536. 

Italy,  accidents,  industrial,  causes 


of,  70;  definition  of,  110;  de- 
gree of  disability,  65;  effect 
of  fatigue  in  men  and  women, 
81;  number,  50;  rate  by  day 
of  week,  79;  by  hour  of  day, 
80;  results  of,  59;  tempo- 
rary disability,  67. 

Accidents,  industrial,  compen- 
sation for,  18,  19;  agricultural 
laborers,  114;  fatal  accidents, 
benefits  to  brothers  and  sis- 
ters, 126;  lump  sum,  126; 
medical  benefits,  117;  small 
establishments  excluded,  115; 
waiting  period,  119. 

Accidents,  industrial,  insurance, 
19;  compulsory,  140-1;  es- 
tablishment funds,  142;  mu- 
tual employers'  associations, 
144;  National  Accident  Insur- 
ance Institution,  137,  138, 
139;  state  insurance,  143;  in 
competition  with  private  com- 
panies, 148;  state  guarantee 
fund,  135,  136;  subsidy  to 
state  insurance,  150;  work- 
men's collective  accident  in- 
surance, 137. 

Life  insurance  for  workmen  by 
state,  25,  427. 

Maternity  insurance,  21,  273; 
benefits,  275;  contributions, 
276. 

Old-age  insurance  compulsory : 
for  railroad  employees,  348; 
for  tobacco  monopoly  em- 
ployees, 348;  national  system 
planned,  487. 

Old-age  insurance,  voluntary,  22, 
329;  actuarial  results,  339, 
340;  age  of  retirement,  339; 
mutual  aid  societies,  322; 
state  institution,  337;  state 
subsidies,  339;  statistical  re- 
sults, 342,  343. 

Railroad  pension  funds,  326. 

Sickness  insurance,  authorized 
mutual  aid  societies,  225,  237 ; 
benefits  given,  227 ;  growth  of, 
226;  membership,  225;  na- 
tional compulsory  system 
planned,  249;  regulation  by 
state,  236,  237;  railroad  em- 
ployees' compulsory  insurance, 
248,  279. 

Unemployment    insurance,    24; 


516 


INDEX 


benefits  paid,  460;    in  cities, 
465;  national  system  planned, 
487. 
Widows'  pensions  by  mutual  aid 

societies,  421. 
Ives  decision,  174. 

Jevons'  theory  of  unemployment, 
448. 

Kansas  accident  compensation, 
elective  act,  169;  elective  act 
not  successful,  178;  extent  of 
application,  189,  190;  insur- 
ance optional,  183;  medical 
aid,  197;  scale  for  fatal  acci- 
dents, 195;  scale  for  perma- 
nent disability,  193;  scale  for 
temporary  disability,  192. 

Kern  Bill  for  accident  compensa- 
tion for  federal  employees, 
202. 

Krankenkassen  in  Germany,  225; 
types  of,  250. 

Labor  exchanges  in  unemployment 
insurance,  435,  470. 

Labor's  objection  to  compensation, 
163. 

Landkrankenkassen  in  Germany, 
253. 

Lapses,  under  industrial  insurance, 
420,  421. 

Leipsic  sick-fund,  accidents  com- 
pensated by,  266;  proportion 
of  cost  of  industrial  accidents, 
130;  sickness  statistics,  216, 
219,  222;  voluntary  extension 
of  benefits,  278;  voluntary  in- 
surance in,  259. 

Leipsic,  unemployment  insurance, 
461,  463. 

Leisersor,  W.  M.,  443. 

Lewis,  Frank  W.,  132. 

Liability  awards,  amounts  in  New 
York,  94;  tendency  to  increase 
in  U.  S.,  167. 

Liability  companies,  accidents  com- 
pensated by,  92-3. 

Liability  insurance  in  U.  S.,  cost 
rising,  66;  development,  184. 

Liability  suits,  delay  of,  96;  num- 
ber settled,  99. 

Liability  system,  social  results,  98. 

Life  insurance,  25,  413,  438;  by 
mutual  organizations,  421;  by 


state,  25,  26,  426;  combined 
with  accumulation,  416;  com- 
pulsory principle,  431,  433; 
methods,  415;  relation  to  old- 
age  pensions,  432. 

Limoges,  France,  unemployment  in- 
surance, 465. 

Local  sick  funds,  250,  251. 

Loss  distribution,  4-5. 

Luxemburg,    accidents,    industrial, 

definition  of,  110. 
Accidents,  industrial,  compensa- 
tion, 108;   age  limit  for  chil- 
dren in  fatal  accidents,   125; 
office  workers,   112;    scale  for 
fatal  accidents,  124;  scale  for 
temporary  disability,  117. 
Accidents,  industrial,  insurance, 
19;  compulsory  mutual  insur- 
ance,  140-1;   employers'  asso- 
ciation,  146;    workmen's   con- 
tributions, 130. 
Old-age  insurance,  345. 
Sick-insurance,     248;     rate     of 
benefits,  272. 

Lying-in  benefits  in  compulsory 
sick-insurance,  273.  See  Ma- 
ternity insurance;  Sick-insur- 
ance. 

Lyons,  France,  unemployment  in- 
surance, 465. 

Malingery,  problems  of,  496-7;  in 
commercial  insurance,  498 ; 
methods  of  counteracting,  470. 

Malthusian  theory  of  over-popu- 
lation as  a  cause  of  unemploy- 
ment, 448. 

Manes,  Alfred,  16. 

Manitoba,  accident  compensation, 
19. 

Maryland,    accident    compensation 
acts,    157,    169;    acts    permis- 
sive   only,    171,    175;    act    of 
1902  unconstitutional,  157. 
Teachers'  pensions,  399. 

Massachusetts,  accident  compen- 
sation, commission  of  1910, 
160;  committee  of  1907,  158; 
compulsory  insurance,  183; 
elective  act,  169;  accepted  by 
employers,  178;  extent  of  ap- 
plication, 189;  investigation 
of  1903,  157-8;  medical  aid, 
197;  misconduct,  191;  mutual 
employers'  association,  183, 


INDEX 


517 


186;  permissive  compensation 
act,  158,  169,  171,  175;  scale 
for  fatal  accidents,  196;  scale 
for  permanent  disability,  193; 
scale  for  temporary  disability, 
192. 

Mothers'  pensions,  435. 
Old-age      insurance      voluntary 
through    savings    banks,    391, 
411,  412. 

Old-age  pension  commission,  307, 
310,  311,  314,  315,  381,  390, 
396,  409,  410. 

Savings    banks    life    insurance, 
427;  premium  rates,  429;  re- 
sults, 430. 
Teachers'  pensions,  399. 

Maternity  insurance,  273,  275;  in 
Italy,  18;  problem  in  U.  S., 
273-4;  relation  to  sick-insur- 
ance, 274;  wives  of  wage- 
workers,  276. 

Medical  benefits  in  accident  com- 
pensation, 117;  in  compulsory 
sick-insurance,  269;  organiza- 
tion of,  270. 

Mexico,  accident  compensation,  19. 

Michigan,  accident  compensation, 
commission  appointed,  160; 
act  passed,  169;  compulsory 
insurance,  183;  elective  act, 
accepted  by  employers,  178; 
extent  of  application,  189; 
medical  aid,  197;  misconduct, 
191;  scale  for  fatal  accidents, 
196;  scale  for  permanent  dis- 
ability, 193;  scale  for  tempo- 
rary disability,  192,  194;  state 
insurance  act,  183. 
Liability  awards  in,  95. 

Middle  class,  old-age  dependency 
in,  307. 

Milan,  Italy,  unemployment  insur- 
ance, 24,  465 ;  number  insured, 
471;  subsidies  granted,  468; 
method  of  computing,  467. 

Milwaukee,  mothers'  pensions,  436. 

Miners'  funds,  25,  250;  compul- 
sory sick-insurance,  248;  same 
in  France,  279;  same  in  Ger- 
many, 252 ;  compulsory  old-age 
insurance,  347;  widows'  and 
orphans'  pensions,  432. 

Minnesota,     accidents,     industrial 

in,  55;  causes  of,  74. 
Accidents,  industrial,  compensa- 


tion    commission     appointed, 
160;  compensation  act  passed, 
170;     extent    of    application, 
189;    insurance    optional    and 
private,  183;  intoxication  rule, 
191;    medical   aid,   198;   scale 
of  benefits,   192. 
Liability  awards  in,  195. 
Mothers'  pensions,  436. 

Misconduct,  serious  and  wilful,  in 
compensation  acts,  109. 

Mitchell,  John,  30,  31. 

Montana  accident  compensation  act 
passed,  169;  declared  unconsti- 
tutional, 170. 

Moore,  L.  B.,  40. 

Moral  hazard  in  unemployment  in- 
surance, 458. 

Morality,  problems  of,  under  in- 
surance, 275. 

Mothers'  pensions  in  U.  S.,  435-7. 

Mulhausen,  Germany,  unemploy- 
ment insurance,  465. 

Munchen,  Germany,  unemployment 
insurance  planned,  465. 

Municipal  pension  funds  in  U.  S., 
391,  399,  400. 

Mutual  aid  societies,  250;  finan- 
cial difficulties  of,  226;  meth- 
ods of  state  supervision,  237; 
old-age  insurance  by,  321-2; 
difficulties  of,  322. 

Mutual  employers'  associations, 
compulsory,  145-6;  mutual  in- 
surance against  industrial  ac- 
cidents, 143;  organization  of, 
145. 

Mutual  life  insurance,  421. 

Mutual  sick-insurance  associations 
in  U.  S.,  294. 

National  Association  of  Manufac- 
turers, 130;  work  for  compen- 
sation, 162. 

National  Civic  Federation,  stand- 
ard compensation  bill,  198, 
199;  work  for  compensation, 
162. 

National  Conference  on  Workmen's 
Compensation,  172;  compen- 
sation bill,  198,  199,  200; 
meetings  and  reports,  161. 

Navigation,  compulsory  old-age  in- 
surance in,  347;  widows'  and 
orphans'  pensions,  432. 

Nearing,  Scott,  32,  452. 


518 


INDEX 


Nebraska    accident    compensation 
act,    170;    extent   of    applica- 
tion,  189,  190;   insurance  op- 
tional and  private,   183. 
Mothers'  pensions,   436. 

Negligence,  survival  of,  in  compen- 
sation acts,  108,  109,  110. 

Negroes,  mutual  aid  among,  283. 

Netherlands,  accidents,  industrial, 

definition  of,  110. 
Accidents,  industrial,  compensa- 
tion, 108;  age  limit  for  chil- 
dren in  fatal  accidents,  125; 
for  office  workers,  112;  scale 
of  benefits  for  fatal  accidents, 
124;  for  temporary  disability, 
117,  118;  scale  limits,  127; 
waiting  period,  119;  widows' 
pensions,  124. 

Accident  insurance,  18;  compul- 
sory insurance,  140,  141 ;  es- 
tablishment funds,  142;  mu- 
tual employers'  associations, 
144;  state  insurance,  143; 
same  in  competition  with  pri- 
vate insurance,  148,  149;  state 
subsidy  to  expenses,  150. 
Mutual  aid  societies,  state  con- 
trol, 239. 

Old-age  insurance,  proposed,  487. 
Sick  -  insurance,         compulsory, 

planned,  249. 

Unemployment  insurance  in 
cities,  465;  number  insured, 
471;  subsidies  granted,  468. 

Nevada,  accident  compensation  act 
of  1911,  169,  181;  act  of  1913, 
170,  181;  compulsory  insur- 
ance with  elective  compensa- 
tion, 183;  extent  of  applica- 
tion, 189,  190;  intoxication, 
191;  medical  aid,  197;  scale 
for  fatal  accidents,  195;  scale 
for  temporary  disability,  192. 

Newfoundland,  accident  compensa- 
tion, 119. 

New  Hampshire,  accident  compen- 
sation act,  169;  elective  acts 
not  successful,  178;  extent  of 
application,  189,  190;  insur- 
ance optional,  183;  insurance 
rates,  179;  intoxication,  191; 
medical  aid,  197;  misconduct, 
191;  scale  for  fatal  accidents, 
195;  scale  for  permanent  dis- 
ability, 193. 


New  Jersey,  accident  compensa- 
tion commission,  act  of  1911, 
169;  amended,  170;  agricul- 
tural workers,  190;  domestic 
service,  190;  elective  compen- 
sation plan,  175-7;  same  ac- 
cepted by  employers,  178;  ex- 
tent of  application,  189;  in- 
surance optional,  183;  insur- 
ance rates  equal  to  liability, 
179;  intoxication,  191;  medi- 
cal aid,  197;  scale  for  fatal 
accidents,  196;  for  partial  dis- 
ability, 194;  for  permanent 
disability,  193;  for  temporary 
disability,  192. 
Mothers'  pensions,  436. 
Teachers'  pensions,  399. 

New  South    Wales,   accident   com- 
pensation   for     miners     only, 
115;     scale     of     benefits     for 
fatal  accidents,    124. 
Old-age  pensions,  369;  cost,  379. 

New  York  Academy  of  Political 
Science,  compensation  meeting 
in  1911,  162. 

New  York,  accident  compensation 
bill  introduced  in  1897,  157; 
acts  of  1910,  169,  171;  act  de- 
clared unconstitutional,  171; 
compulsory  insurance  in  bill 
of  1913,  183;  constitutional 
amendment,  181;  extent  of 
application  of  act  of  1910, 
189;  negligence  in  act  of 
1910,  191;  permissive  act, 
175;  state  insurance  proposed, 
186. 

New  York  Association  for  Labor 
Legislation,  162. 

New  York  Board  of  Charities 
on  disease  and  destitution, 
205. 

New  York  Bureau  of  Labor,  156; 
statistics  on  unemployment, 
445-6. 

New  York  City,  cost  of  living  in, 
31-2. 

New  York  Conference  of  Charities 
and  Corrections  on  cost  of  liv- 
ing, 31. 

New  York  Court  of  Appeals  on 
constitutionality  of  Wain- 
wright  Act,  174. 

New  York  Employer's  Liability 
Commission,  86,  92,  94,  173, 


INDEX 


519 


443,  453;  appointed,  160;  on 
due  process  of  law,  173;  wages 
in  dangerous  trades,  101. 

New  York  Federation  of  Labor, 
190. 

New  York  Kranken-  und  Sterbe- 
kasse,  287. 

New  Zealand,  accident  compensa- 
tion, 18;  benefit  limits,  127, 
128. 

Old-age  pensions,  368;  age,  375; 
amount  of  pension,  376;  cost, 
379 ;  income  limits,  374 ;  moral 
qualifications,  373,  374;  num- 
ber of  pensioners,  379;  prop- 
erty limits,  375;  residence 
qualification,  373. 

North  Dakota,  compensation  com- 
mission appointed,  160. 

Norway,  accidents,  industrial, 
number  of,  50;  results  of,  59. 
Accidents,  industrial,  compensa- 
tion, 18,  19,  108;  age  limit 
for  children  in  fatal  accidents, 
125 ;  scale  of  benefits  for  fatal 
accidents,  124;  scale  for  dis- 
ability, 117;  scale,  limits  of, 
128;  waiting  period,  119; 
workingmen's  contributions, 
130. 

Accidents,  industrial,  compul- 
sory state  insurance,  140,  143; 
reason  for  deficit,  151. 
Old-age  insurance  planned,  487. 
Sick-insurance  compulsory,  21, 
248,  249;  burden  of  cost,  260; 
extent  of  application,  258; 
funeral  benefits,  277;  mater- 
nity benefits,  276;  medical 
aid,  269;  organization  of 
funds,  253;  rate  of  benefits, 
272;  time  limit  of  benefits, 
265. 

Unemployment  insurance,  24, 
466;  benefits  paid,  467;  num- 
ber insured,  471;  subsidies 
granted,  467,  468. 

Nova  Scotia,  accident  compensa- 
tion, 19. 

Nuremberg,  unemployment  insur- 
ance, 465,  469. 

Occupation,  influence   of,  on   sick 

rate,  229. 
Occupational   accidents,   definition 

of,  110;  diseases,  212. 


Office  workers,  accident  compensa- 
tion for,  112. 

Ohio,  accident  compensation,  com- 
mission appointed,  160; 
passed,  169,  170;  extent  of 
application,  190;  medical  aid, 
198;  self-inflicted  injuries, 
191;  scale  for  fatal  accidents, 
196;  for  permanent  disability, 
193;  for  temporary  disability, 
192;  waiting  time,  197. 
Accident  insurance,  compulsory 
act  of  1913,  170,  175,  184; 
constitution  amended,  181 ; 
compulsory  state  insurance 
with  elective  compensation, 
169,  183;  not  successful,  178. 
Mothers'  pensions,  436. 

Old-age  dependency,  causes  of,  306; 
statistics,  309. 

Old  age  in  industry,  301,  317; 
economic  disabilities  of,  304; 
effect  of  industrial  evolution 
upon,  302;  premature,  causes 
of,  304. 

Old-age  insurance,  299,  318;  actu- 
arial principles,  330-3;  de- 
velopment of,  21-3;  present 
status,  27. 

Compulsory,  345,  346;  actuarial 
conditions,  363 ;  advantages 
of,  386;  contributions,  351; 
elements  of  state  pension,  367 ; 
employers'  contributions  jus- 
tified, 386;  financial  organiza- 
tion, 362-80;  German  and 
French  systems  compared, 
349;  immediate  problems  in, 
357;  objections  to,  385;  or- 
ganization, 361 ;  reserve  funds, 
investment  of,  363;  state  sub- 
sidy, cost  of,  362;  transitory 
provisions,  357;  workers'  con- 
tributions, 354. 

Voluntary,  318,  328;  establish- 
ment funds,  324;  incidence  of 
cost,  327. 

Old-age  pensions,  non-contributory, 
23,  367-88;  age,  375;  amount 
of  pension,  376;  compared 
with  compulsory  insurance, 
384-7;  cost,  379,  383,  384;  dis- 
advantages of,  381;  386;  eco- 
nomic qualifications,  374;  ef- 
fect upon  family,  382;  effect 


520 


INDEX 


upon  wages,  382;  effect  upon 
thrift,  381;  moral  qualifica- 
tions, 373;  necessary  for  im- 
mediate conditions,  387;  prop- 
erty limits,  political  qualifica- 
tions, 371-3. 

Optional  insurance  under  compul- 
sory sick-insurance  system, 
259. 

Oregon,  accident  compensation  act 
of  1913,  170;  compulsory  state 
insurance  with  elective  com- 
pensation, 183;  extent  of  ap- 
plication, 189,  190;  scale  of 
benefits,  permanent  disability, 
193;  temporary  disability, 
192;  waiting  time,  197. 
Mothers'  pensions,  436. 

Organized  labor,  opposed  to  com- 
pensation, in  Illinois,  158;  in 
New  York,  157. 

Orphans'  pensions,  413-38;  by  mu- 
tual aid  societies,  421;  in  Ger- 
many, 433. 

Ortskrankenkassen  in  Germany, 
250. 

Out-of-work  benefits,  see  Unem- 
ployment insurance. 

Padua,  Italy,  unemployment  insur- 
ance, 465. 

Parents'  rights  in  fatal  accidents, 
125,  126. 

Paris,  unemployment  insurance, 
465. 

Partial  permanent  disability,  com- 
pensation for,  122;  determina- 
tion of  degree,  122. 

Pauperism,  increase  of,  in  relation 
to  social  insurance,  484.  See 
Poverty. 

Pennsylvania,    accident   compensa- 
tion,    commission     appointed, 
160. 
Mothers'  pensions,  436,  437. 

Pennsylvania  R.  R.,  pension  and 
sick-benefit  funds,  290,  326, 
394. 

Pension  funds,  industrial,  25;  pri- 
vate, advantages  of,  325;  dis- 
advantages, 326-8. 

Pension  hysteria,  496,. 

Pensions  for  fatal  accidents,  123. 

Permanent  disability,  resulting 
from  industrial  accidents,  63, 
119-20. 


Permissive  compensation  acts  in 
the  U.  S.,  175. 

Peru,  accident  compensation,  19. 

Petty  accidents,  compensation  of, 
118. 

Phelps,  E.  B.,  390. 

Philadelphia  and  Reading  R.  R., 
pension  funds,  394;  sick  bene- 
fit funds,  290. 

Physicians'  strikes  in  Germany, 
270. 

Pittsburgh,  industrial  accidents  in, 
74;  liability  awards,  94. 

Poisons,   industrial,   211. 

Policemen's  pension  funds  in  the 
U.  S.,  399. 

Poor-relief  and  old-age  dependency, 
316;  and  old-age  pensions, 
369-70;  growth  of,  485. 

Poverty,  as  cause  of  disease,  207; 
causes  of,  7,  8,  482;  definition 
of,  481,  482;  factor  of  death 
rate,  220;  prevention  of, 
481. 

Premiums,  pure,  4;  methods  of 
reducing,  10. 

Prevention  in  relation  to  insur- 
ance, 441-2. 

Prices  in  U.  S.,  32. 

Private  insurance  against  acci- 
dents, 142. 

Private   pension  funds,    393. 

Probability  of  life  for  workers, 
303. 

Progressive  party  platform,  old- 
age  pensions  in,  411. 

Prudential  Insurance  Co.,  419. 

Prudential  life  insurance,  see  In- 
dustrial life  insurance. 

Public  works  as  a  remedy  against 
unemployment,  454. 

Quebec,  accident  compensation,  19, 
128. 

Queensland,  accident  compensa- 
tion, 19,  127,  128. 

Railroad     employees,     compulsory 

old-age    insurance    for,    347; 

widows'  and  orphans'  pensions, 

432. 
Railroad  pension  funds,   25,   326; 

in  U.  S.,  393,  394. 
Railroad    relief    funds    in    U.    S., 

288;   liability  releases  under, 

290,  291. 


INDEX 


521 


Rate-making  in  state  accident  in- 
surance, 151. 

Rava,  Luigi,  341. 

Remarriage,  lump  sum  in  case  of, 
124. 

Reserved-capital  plan  of  old-age  in- 
surance, 333. 

Reserve  funds  in  old-age  insurance, 
investments  of,  363. 

Rhode  Island,  accident  compensa- 
tion act,  170;  insurance  op- 
tional, 183;  scale  of  benefits 
for  fatal  accidents,  196;  for 
permanent  disability,  193;  for 
temporary  disability,  192, 
194. 
Teachers'  pensions,  399. 

Robinson,  William  J.,  207. 

Roosevelt,  T.,  157. 

Roubaix,  unemployment  insurance, 
465,  469. 

Roumania,  industrial  accident  in- 
surance, 19;  old-age  insurance 
compulsory,  346 ;  sick-insur- 
ance, 248,  249 ;  burden  of  cost, 
260;  organization,  253;  rate 
of  benefits,  272. 

Rubinow,  I.  M.,  202,  349,  433,  492, 
497. 

Rural  sick-funds  in  Germany, 
253. 

Russia,  accidents,  industrial, 
causes  of,  70;  degree  of  dis- 
ability, 65;  number,  50;  re- 
sults, 59;  temporary  dis- 
ability, 67. 

Accidents,  industrial,  compensa- 
tion, 108;  gross  negligence, 
109;  office  workers,  112; 
scale  for  fatal  accidents,  124; 
same,  children's  pensions,  125; 
same,  brothers  and  sisters, 
126;  scale  for  permanent  dis- 
ability, 120;  scale  for  tempo- 
rary disability,  117;  small  es- 
tablishments excluded,  115; 
waiting  period,  119;  widows' 
pensions,  124. 

Accidents,  industrial,  insurance, 
19;  compulsory  mutual  insur- 
ance, cost  of,  140,  141,  201; 
employers'  mutual  associa- 
tions, 144,  146;  development 
of,  149;  sick-benefit  societies, 
118,  119;  workmen's  collective 
insurance,  137, 


Life  insurance  through  postal 
savings  banks,  25,  427. 

Old-age  insurance  planned,  487. 

Old-age  pension  funds,  compul- 
sory for  government  miners, 
347;  railroads,  25,  326;  state 
metal-working  factories,  348. 

Sick-insurance  compulsory,  21, 
248,  249;  employers'  contri- 
butions, 260;  extent  of  appli- 
cation, 258;  funeral  benefits, 
277;  maternity  benefits,  276; 
medical  aid,  269-70;  organi- 
zation, 257;  railroad  em- 
ployees, 280;  sick-benefits, 
272. 

Social  insurance,  unification  of 
systems,  487. 

St.  Gall,  Switzerland,  compulsory 
unemployment  insurance,  473- 
4. 

St.  Louis,  Mo.,  mothers'  pensions, 
436. 

Savings  as  a  remedy  in  old-age 
destitution,  313. 

Savings-banks  deposits  in  U.  S., 
40. 

Scales  of  compensation  in  Europe, 
116-29;  in  U.  S.,  192-200. 

Schloss,  D.  F.,  475. 

Schwedtman,  F.,  130,  163. 

Scientific  management  and  old  age, 
305. 

Seager,  H.  R.,  174-5,  205,  395. 

Seamen's  pension  funds,  25.  See 
Navigation. 

Self-inflicted  injuries  under  com- 
pensation, 108. 

Servia,  accidents,  industrial,  com- 
pensation, 19. 

Sick-insurance  compulsory,  21, 
248,  249;  employers'  contri- 
butions, 260;  organization, 
253. 

Sex,  influence  upon  sick-rate,  215. 

Shop  clubs,  229. 

Sick-funds,  types  of,  250. 

Sickness,  economic  results,  221; 
economic  cost  of  in  U.  S.,  214; 
loss  to  American  workmen, 
222. 

Sickness  insurance,  203-300;  de- 
velopment of,  20-1;  present 
status,  27;  state  control  of, 
235. 


522 


INDEX 


Sickness  insurance,  compulsory, 
248-80;  benefit  features,  264- 
80;  employers'  contributions, 
259-60;  extent  of  application, 
257-9;  in  certain  industries 
only,  278-9;  industrial  acci- 
dents cared  for,  267-8;  medi- 
cal aid,  269;  petty  accidents, 
266;  relation  to  invalidity  in- 
surance, 266;  state  contribu- 
tions to,  260-1 ;  time  limits  'to 
benefits,  265;  voluntary  exten- 
sion of  benefits,  278. 

Sickness  insurance,  subsidized,  240- 
8;  benefits  given,  246;  regu- 
lation of  service,  244;  results 
criticised,  245-6. 

Sickness  insurance,  voluntary,  224, 
239 ;  burden  of  cost,  234 ;  bene- 
fits given,  227;  contributions, 
228;  organization,  228. 

Slavonia,  territorial  mutual  em- 
ployers' association,  146. 

Social  Insurance,  beginnings  of, 
13-4;  burden  upon  industry, 
488;  class  struggle,  in  rela- 
tion to,  500-1 ;  classes  not  pro- 
tected by,  486;  classification 
of,  16-7;  concept  of,  3-12; 
definition  of,  3;  cost  of,  488; 
development  of,  13-27;  dis- 
tinct from  commercial  insur- 
ance, 6-10;  distribution  of 
wealth  as  influenced  by,  491; 
extensions  of,  planned,  487; 
fields  not  covered,  485;  finan- 
cial burden  of,  489;  fiscal  ar- 
guments against,  490-1 ;  inci- 
dence of  cost,  491;  interde- 
pendence of  different  branches, 
432;  malingery,  496;  pauper- 
ism affected  by,  484;  public 
charity  affected  by,  480;  pre- 
vention under,  493-4 ;  purposes 
of,  481;  results  of,  483;  social 
import,  480;  social  peace,  498- 
500;  social  revolution,  499; 
unified  systems,  487. 

Socialism,  growth  of,  and  social 
insurance,  499. 

Socialist  attitude  to  social  insur- 
ance, 106;  to  bill  for  old-age 
pensions,  411;  explanation  of 
crises,  448. 

Societa  di  Mutuo  Soccorso,  225. 

Socie'te's  de  secours  mutuels,  225. 


South  Australia,  accident  compen- 
sation, 18;  agricultural  labor- 
ers, 114;  benefits,  127,  128. 

South  Dakota,  mothers'  pensions, 
436. 

Spain,  accidents,  industrial,  degree 
of  disability,  65;  number  of, 
50. 

Accidents,  industrial,  compensa- 
tion for,  18;  agricultural  la- 
borers, 114;  lump  sums  for 
permanent  disability,  121; 
mutual  employers'  association, 
144;  office  workers,  112;  scale 
of  benefits  for  temporary  dis- 
ability, 117;  voluntary  disabil- 
ity, 117;  voluntary  insurance, 
140,  141;  waiting  time,  119. 
Old-age  insurance,  22,  329 ;  state 

subsidy,  340. 

Railroad  pension  funds,  25. 
Sick-insurance  in  mutual  aid  so- 
cieties, 225. 

Speed  as  a  cause  of  industrial  ac- 
cidents, 77. 

Squier,  L.  W.,  306,  310,  311,  382, 
390,  393,  394,  395,  396,  399, 
411. 

Standard  Oil  Co.  Pension  Fund, 
395. 

State  guarantee  funds  in  accident 
compensation,  135. 

State  insurance  against  industrial 
accidents,  143 ;  development, 
140;  causes  of  popularity  in 
U.  S.,  186;  objections  to,  152. 

State  insurance  against  old  age, 
voluntary,  329,  349. 

State  regulation  of  mutual  bene- 
fit societies,  235,  236. 

State  subsidies  to  old-age  insur- 
ance, 335;  to  sickness  insur- 
ance, 240-8. 

Strassburg  unemployment  insur- 
ance, 465;  benefits  paid,  467; 
methods  of  control,  470;  num- 
ber insured,  471;  subsidies 
granted,  468. 

Subsidized  insurance  against  sick- 
ness, 240-8;  against  old  age, 
329-44;  against  unemploy- 
ment, 456-72. 

Sulzer,  Wm.,  veto  of  the  N.  Y. 
Compensation  Act,  1913,  183. 

Superannuation  problem,  301,  317; 
in  United  States,  389. 


INDEX 


523 


Sweden,  accidents,  industrial,  de- 
gree of  disability,  65;  num- 
ber of,  50. 

Accidents,  industrial,  compensa- 
tion act,  18;  gross  negligence, 
109;  medical  aid  not  given, 
117;  office  workers,  112;  scale 
of  benefits  for  fatal  accidents, 
124;  waiting  periods,  119,  130. 

Accidents,  industrial,  insurance, 
19;  mutual  employers'  asso- 
ciation, 144;  state  insurance, 
143;  state  insurance  competi- 
tive, 148,  149 ;  state  insurance, 
administrative  expense  of 
borne  by  state,  150;  voluntary 
insurance,  140,  141. 

Old-age  insurance  compulsory 
act  of  1913,  346. 

Sick-benefit  societies,  member- 
ship of,  225;  state  control, 
243. 

Sickness  insurance  subsidized, 
21,  240;  amount  of  subsidy, 
241 ;  compulsory  insurance 
planned,  249;  cost,  245;  re- 
sults, 245,  246. 

Switzerland,  accidents,  industrial, 
compensation  scale  of  benefits, 
192;  scale  for  fatal  accidents, 
124;  same,  age  limit  for  chil- 
dren, 125;  same,  for  temporary 
disability,  117,  118;  widows' 
pensions,  124. 

Accidents,  industrial,  insurance 
against,  19. 

Accidents,  non-industrial,  insur- 
ance against,  17,  266,  267. 

Employer's   Liability  Law,    103. 

Sickness  insurance,  subsidized, 
21;  amount  of  state  subsidy, 
242;  regulation  of  service, 
244;  state  control,  243. 

State  insurance  compulsory,  140; 
workmen's  collective  insur- 
ance, 138. 

Unemployment  insurance,  com- 
pulsory, 473. 

Unification   of    social    insurance 

systems,  487. 

Sygekassen  in  Denmark,  225. 
Syndicalists,  objection  of,  to  old- 
age  insurance  in  France,  365. 

Taylor,  J.,  358. 

Temporary     disability      resulting 


from  industrial  accidents,  com- 
pensation for  in  Europe,  116- 
8;  duration  of,  67. 

Texas,  accidents,  industrial,  com- 
pensation commission  appoint- 
ed, 160;  compulsory  insurance, 
183;  elective  compensation, 
170;  extent  of  application, 
189,  190;  scale  of  benefits,  192; 
self-inflicted  injuries,  191; 
state  mutual  (associations, 
193;  waiting  time,  197. 

Thrift,  limitations  of,  8,  9. 

Trade  risk,    103,   115. 

Trade  unions,  old-age  insurance  by, 
322;  in  United  States,  391, 
392;  sick-insurance  in  United 
States,  284. 

Transitory  provisions,  in  old-age 
insurance,  359. 

Transvaal,  accidents,  industrial, 
compensation,  19;  limits  of 
benefits,  128. 

Trial  by  jury  under  compensation, 
173. 

Tuberculosis  in  dusty  trades,  212; 
mortality  from,  in  U.  S.,  220. 

Tugan-Baranowsky,  M.,  448. 

Unconstitutional  compensation 
acts,  Maryland,  57;  Montana, 
New  York,  170. 

Unemployment,  casual  trades,  449 ; 
causes  of,  448;  crises  and  in- 
dustrial depression,  446-7;  dif- 
ficulty of  testing,  456-7;  eco- 
nomic consequences  of,  451; 
factors  of,  448;  fluctuations 
of,  446;  measure  of,  442-4; 
personal  factors,  450;  prob- 
lem, 441-52;  remedial  meas- 
ures, 452,  453;  responsibility 
for,  450;  seasonal  causes,  449; 
seasonal  fluctuations,  446; 
statistics,  difficulties  of,  442, 
443;  subsidies  to  individual 
savings,  468,  469 ;  trade  varia- 
tions, 447;  tramps,  451;  wage 
adjustment  for,  455;  wages 
determined  by,  452. 

Unemployment  insurance,  439-79; 
development  of,  24;  possibili- 
ties, 456;  present  status,  27; 
selection  of  risks,  457,  459. 

Unemployment  insurance,  com- 
pulsory, 473-9 ;  arguments 


524 


INDEX 


against,  475,  476;   arguments 
for,  455. 

Unemployment  insurance,  sub- 
sidized, 456,  475;  autonomous, 
461-3;  benefits  paid,  467; 
Ghent  system,  464;  member- 
ship conditions  of,  467;  pro- 
vided systems,  461;  results, 
470,  471;  statistics,  471;  sub- 
sidies granted,  467;  trade 
unions,  466. 

Unemployment  insurance,  volun- 
tary through  trade  unions, 
457;  benefits  paid,  460;  bur- 
den of,  459,  460;  limitations  of, 
459;  methods  of  meeting  diffi- 
culties, 470;  statistics  of,  462. 
United  States,  accidents,  indus- 
trial, fatal,  53;  railroad  acci- 
dents, 55. 

Accidents,  industrial,  compensa- 
tion, 19;  demands  for  informa- 
tion, 166;  history  of,  155,  169; 
intoxication,  191;  limitation 
accorded  to  number  of  em- 
ployees, 190;  limits  of  com- 
pensation, 192;  list  of  acts 
passed,  169,  170;  medical  aid, 
197,  198;  negligence  concept, 
191;  scale  of  compensation, 
191;  for  fatal  accidents,  195, 
196,  197;  for  partial  disabil- 
ity, 194;  permanent  disability, 
time  limits,  192,  193;  waiting 
time,  197. 

Accidents,  industrial,  insurance, 
136;  compulsory  state  insur- 
ance with  elective  compensa- 
tion, 183;  insurance  methods 
discussed,  182;  liability  insur- 
ance, higher  cost,  167;  pre- 
mium rates  rising,  167. 

Aged  persons  in  occupations, 
312;  statistics  of,  310. 

Bureau  of  Labor,  cost  of  living 
investigation,  39;  wage  statis- 
tics, 37. 

Commissioner  of  Labor,  reports 
of,  282. 

Constitution,  incompatible  with 
compulsory  compensation,  181. 

Employer's  Liability  and  Work- 
men's Compensation  Commis- 
sion, 172;  compensation  bill 
of,  198;  unlimited  pensions 
for  permanent  disability,  195. 


Establishment  funds,  death  bene- 
fits paid  by,  422-3. 

Fraternal  orders,  life  insurance 
by,  424-5. 

Government  employees,  accident 
compensation  for,  202;  act  of 
1908,  159,  160,  169;  old-age 
pension  movement,  399,  401, 
402;  actuarily  unsound,  401; 
contributory  system  versus 
straight  pensions,  402,  404. 

Mothers'  pensions,  261;  opposi- 
tion to,  437. 

Mutual  life  insurance,  422,  424. 

National  wealth,  increase  in,  490. 

Old-age  pensions,  389;  bills  for, 
410,  411. 

Railroad  benefit  funds,  death- 
benefits  paid,  422;  old-age  in- 
surance, 390;  sick-insurance, 
288,  289. 

Sick-insurance,  281-300;  classi- 
fication of  institutions,  283; 
establishment  funds,  287;  em-' 
ployers'  contributions  in,  288; 
industrial  benefit  societies, 
286;  insufficiency  of,  282; 
statistical  summary,  291,  292; 
trade  unions,  284;  trade 
unions,  local,  285. 

Social  insurance,  need  of,  28- 
46. 

Standard  of  life  in,  30. 

Steel  Corporation  compensation 
scheme,  163-4;  pension  fund, 
395. 

Teachers,  pensions  for,  399. 

Unemployment  insurance  in 
trade  unions,  458. 

Unemployment  statistics,  444-5; 
various  occupations,  447. 

Wages,  30,  32;  rise  in,  35-7. 

Wage-workers,  proportion  of,  29. 

War    pensions,    399,    404,    409; 
cost    of,    404-5;    history,    405- 
6;    pensioners,    406;    pension- 
ers decrease  in  number,  409; 
pensioners,    nativity   of,    408; 
Southern  state  pensioners,  407. 
Uruguay,  state  life  insurance,  427. 
Utah,  mothers'  pensions,  436. 
Utrecht,  unemployment  insurance, 
465. 

Vanderlip,  F.  A.,  389. 
Yarlez,  Louis,  403. 


INDEX 


525 


Venice,  Italy,  unemployment  insur- 
ance, 461. 

Versicherungszwang,  140,  183.  See 
Compulsory  Insurance. 

Victoria,  Australia,  old-age  pen- 
sions, 369,  379. 

Virginia,   teachers'    pensions,    399. 

Voluntary  old-age  insurance,  318- 
28.  See  Old-age  insurance, 
voluntary. 

Wainwright  Act  declared  uncon- 
stitutional, 171. 

Waiting  period  in  accident  com- 
pensation, 119. 

War  pensions  in  U.  S.,  391,  404, 
409. 

Washington,  accident  insurance 
commission  appointed,  160; 
compulsory  state  insurance 
act,  169,  175,  182,  184,  185; 
criticisms,  185;  extent  of 
application,  189,  190;  scale 
for  fatal  accidents,  196;  scale 
for  permanent  disability,  193; 
scale  for  temporary  disability, 
192;  self-inflicted  injuries, 
191. 
Mothers'  pensions,  436. 

Washington  State  Supreme  Court 
in  the  Ives  decision,  175. 

Webb,  Sidney  and  Beatrice,  205, 
222,  493,  494. 

West  Australia,  accident  compen- 
sation, 119. 

West  Virginia,  accident  compen- 
sation, commission  appointed, 
160;  compulsory  state  insur- 
ance under  elective  compensa- 
tion, 170,  183;  extent  of  ap- 
plication, 189;  intoxication, 
191;  waiting  time,  197. 

Whitman  Savings  Bank,  old-age 
insurance  under  Massachusetts 
system,  412. 

Whitney,  A.  W.,  201. 

Widowhood,  economic  employment 
of,  415;  statistics  of,  in  U.  S., 
414. 


Widows'  and  orphans'  insurance, 
25;  in  Germany,  27;  pensions, 
413-38. 

Widows'   pensions   by   mutual    so- 
cieties, 421 ;  in  certain  indus- 
tries, 432;  in  fatal  accidents, 
124;  in  Germany,  433. 
Willoughby,    W.    F.,    156. 
Wisconsin,     accidents,     industrial, 

55. 

Accidents,  industrial,  compensa- 
tion compulsory  for  state  em- 
ployees, 181;  elective  act,  169; 
elective  act  constitutional, 
178;  elective  act  unsuccessful, 
178;  extent  of  application, 
190;  insurance  optional,  183; 
medical  aid,  198;  misconduct, 
191;  rates  higher  than  liabil- 
ity, 179;  scale  for  fatal  acci- 
dents, 195;  scale  for  perma- 
nent disability,  193;  scale  for 
temporary  disability,  192; 
waiting  time,  197. 
Employer's  liability  commission 

appointed,  160. 
Liability  awards,  94;  suits  and 

appeals,  196. 
Mothers'  pensions,  436. 
Old-age  insurance,  391,  411. 
State   life   insurance,   427. 
Workingmen's  budgets  in  U.  S.,  39. 
WTorkingmen's  collective  insurance, 

development  of,  137-8. 
Workingmen's  contributions  to  ac- 
cident insurance,  130. 
Workmen's     insurance,     definition 

of,  3,  12. 

Workingmen's  Sick  and  Benefit 
Fund  of  New  York,  287. 

Zahn,   F.,   489. 

Zartman,  L.  W.,  419. 

Zurich,  Switzerland,  agitation  for 
compulsory  unemployment  in- 
surance, 474. 

Zwangsversicherung,  140,  183.  See 
Compulsory  insurance. 


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policies  and  the  civilization  of  patriotism. 

KATHARINE  ANTHONY'S 
FEMINISM  IN  GERMANY  AND 

SCANDINAVIA 

By  the  author  of  "Mothers  Who  Must  Earn." 
$1.35  net. 

This  is  the  first  book  to  be  published  in  this  country 
containing  a  substantial  and  concrete  statement  of  what 
Feminism  means  beyond  the  English  Channel. 

The  contents  includes:  The  Coalescence  of  the  Euro- 
pean Feminists — Schools  and  the  Woman — Some  Reali- 
zations in  Dress  Reform — The  Mutterschutz  Idea — 
State  Maternity  Insurance — Reclaiming  the  Illegitimate 
Child  in  Norway — The  Economic  Renaissance  of  the 
German  Woman — The  Valkyrie  Vote — The  Philosophy 
of  Feminism — Bibliography. 

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BOOKS    ON    SOCIAL    SCIENCE 

IN  THE  HOME  UNIVERSITY  LIBRARY 

THE  NEGRO 

By  W.  E.  BURGHART  DuBois, 
author  of  Souls  of  Black  Folks, 
etc.  A  history  of  the  black  man 
in  Africa,  America  or  wherever 
else  his  presence  has  been  or  is 
important. 

CO  -  PARTNERSHIP       AND 

PROFIT  SHARING 
By  ANEURIN  WILLIAMS.  Ex- 
plains the  various  types  of  co- 
partnership or  profit-sharing,  or 
both,  and  gives  details  of  the 
arrangements  now  in  force  in 
many  of  the  great  industries. 

POLITICAL     THOUGHT: 
From.  Herbert  Spencer 
to  the  Present  Day 
By   ERNEST   BARKER,   M.A.,   Ox- 
ford. 

UNEMPLOYMENT 
By  A.  C.  PIGOU,  M.A.,  Professor 
of_  Political  Economy  at  Cam- 
bridge. The  meaning,  measure- 
ment, distribution,  and  effects  of 
unemployment,  its  relation  to 
wages,  trade  fluctuations,  and 
disputes,  and  some  proposals  of 
remedy  or  relief. 

COMMON-SENSE  IN  LAW 
By  PROF.  PAUL  VINOGRADOFF, 
D.C.L.,  LL.D.  Social  and  Legal 
Rules — Legal  Rights  and  Duties 
— Facts  and  Acts  in  Law — Leg- 
islation— Custom — -Judicial  Pre- 
cedents— Equity — The  Law  of 
Nature. 

ELEMENTS    OF   POLITICAL 

ECONOMY 

By  S.  J.  CHAPMAN,  Professor  of 
Political  Economy  and  Dean  of 
Faculty  of  Commerce  and  Ad- 
ministration, University  of  Man- 
chester. A  clear  statement  of 
the  theory  of  the  subject  for 
non-expert  readers. 

THE  SCIENCE  OF  "WEALTH 


By    J.    A.    HOBSON,    author    of 
Problems  of  Poverty.      A  ^  study 


of  the  structure  and  working  of 

the  modern  business  world. 
PARLIAMENT.     Its    History, 
Constitution,  and 
Practice 

By    SIR    COURTENAY   P.    ILBERT, 

Clerk  of  the  House  of  Commons. 

"Can  be  praised  without  reserve. 
Cloth  bound,  good  paper,  clear  type,  256  pages 
per  volume,  bibliographies,  indices,  also  maps 
or  illustrations  where  needed.  Each  complete 
and  sold  separately. 


Admirably     clear." — New     York 

THE'    SOCIALIST     MOVE- 
MENT 

By  J.  RAMSAY  MACDONALD,  Chair- 
man of  the  British  Labor  Party. 
"The  latest  authoritative  exposi- 
tion of  Socialism." — San  Fran- 
cisco Argonaut. 

LIBERALISM 

By  PROF.  L.  T.  HOBHOUSE,  au- 
thor of  Democracy  and  Reaction. 
A  masterly  philosophical  and  his- 
torical review  of  the  subject. 

THE  STOCK  EXCHANGE 
By  F.  W.  HIRST,  Editor  of  the 
London  Economist.  Reveals  to 
the  non-financial  mind  the  facts 
about  investment,  speculation, 
and  the  other  terms  which  the 
title  suggests. 

THE     EVOLUTION     OF     IN- 

DUSTRY 

By  D.  H.  MACGREGOR,  Professor 
of  Political  Economy,  University 
of  Leeds.  An  outline  of  the  re- 
cent changes  that  have  given  us 
the  present  conditions  of  the 
working  classes  and  the  princi- 
ples involved. 

ELEMENTS      OF      ENGLISH 

LAW 

By  W.  M.  GELDART,  Vinerian 
Professor  of  English  Law,  Ox- 
ford. A  simple  statement  of  the 
basic  principles  of  the  English 
legal  system  on  which  that  of 
the  United  States  is  based. 

THE  SCHOOL:  An  Introduc- 
tion to  the  Study  of 
Education 

By  J.  J.  FINDLAY,  Professor  of 
Education,  Manchester.  Pre- 
sents the  history,  the  psycholog- 
ical basis,  and  the  theory  of  the 
school  with  a  rare  power  of  sum- 
mary and  suggestion. 

IRISH  NATIONALITY 
By  MRS.  J.  R.  GREEN.  A  bril- 
liant account  of  the  genius  and 
mission  of  the  Irish  people.  "An 
entrancing  work,  and  I  would 
advise  every  one  with  a  drop  of 
Irish  blood  in  his  veins  or  a 


vein  of  Irish  sympathy  in  his 
heart  to  read  it."— New  York 
Times'  Review. 


net,  per 
Volume 


60c. 


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Hmerican  public  problems  Series 

Edited  by  RALPH  CURTIS  RINGWALT 


Chinese  Immigration 

By  MARY  ROBERTS  COOLIDGE,  Formerly  Associate  Professor 
of  Sociology  in  Stanford  University.  531  pp.,  $2.00  net;  by 
mail,  $2.15. 

Presents  the  most  comprehensive  record  of  the  Chinaman  in 
the  United  States  that  has  yet  been  attempted. 

"Scholarly.  Covers  every  important  phase,  economic,  social,  and 
political,  of  the  Chinese  question  in  America  down  to  the  San  Francisco 
nre  in  1906." — JVfuf  York  Sun. 

"Statesmanlike.    Of  intense  interest."— Hartford  Courant. 

"A  remarkably  thorough  historical  study.  Timely  and  useful.  En- 
hanced by  the  abundant  array  of  documentary  facts  and  evidence."— 
Chicago  Record-Herald. 

Immigration:  And   Its  Effects   Upon  the  United 
States 

By  PRESCOTT  F.  HALL,  A.B.,  LL.B,  Secretary  of  the  Immi- 
gration Restriction  League.  393  pp.  $1.60  net;  by  mail,  $1.75. 

41  Should  prove  interesting-  to  everyone.  Very  readable,  forceful  and 
convincing.  Mr.  Hall  considers  every  possible  phase  of  this  great 
question  and  does  it  in  a  masterly  -way  that  shows  not  only  that  he 
thoroughly  understands  it,  but  that  he  is  deeply  interested  in  it  and  has 
studied  everything  bearing  upon  it."— Boston  Transcript- 

"A  readable  work  containing  a  vast  amount  of  valuable  information. 
Especially  to  be  commended  is  the  discussion  of  the  racial  effects.  As  a 
trustworthy  general  guide  it  should  prove  a  god-send." — New  York 
Evening  Post. 

The  Election  of  Senators 

By  Professor  GEORGE  H.  HAYNES,  Author  of  "  Representation 
in  State  Legislatures."  300  pp.  $1.75  net;  by  mail,  $1.90. 

Shows  the  historical  reasons  for  the  present  method,  and 
its  effect  on  the  Senate  and  Senators,  and  on  state  and  local 
government,  with  a  detailed  review  of  the  arguments  for  and 
against  direct  election. 

41 A  timely  book.  .  .  .  Prof.  Haynes  is  qualified  for  a  historical  and 
analytical  treatise  on  the  subject  of  the  Senate."—  Ne-w  York  Evening  Sun 


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BERGSON'S  CREATIVE  EVOLUTION 

Translated  from  the  French  by  *Dr.  Arthur  cMifchetl 
$3.00  net,  by  mail  $3.17 

"Bergson's  resources  in  the  way  of  erudition  are  remark- 
able, and  in  the  way  of  expression  they  are  simply  phe- 
nomenal. ...  If  anything  can  make  hard  things  easy  to 
follow  it  is  a  style  like  Bergson's.  It  is  a  miracle  and  he 
a  real  magician.  Open  Bergson  and  new  horizons  open 
on  every  page  you  read.  It  tells  of  reality  itself  instead 
of  reiterating  what  dusty-minded  professors  have  written 
about  what  other  previous  professors  have  thought.  Nothing 
in  Bergson  is  shopworn  or  at  second-hand." — William  James. 

"A  distinctive  and  trenchant  piece  of  dialectic.  .  .  .  Than 
its  entrance  upon  the  field  as  a  well-armed  and  militant 
philosophy  there  have  been  not  many  more  memorable  occur- 
ences  in  the  history  of  ideas." — Nation. 

"To  bring  out  in  an  adequate  manner  the  effect  which 
Bergson's  philsophy  has  on  those  who  are  attracted  by  it 
let  us  try  to  imagine  what  it  would  have  been  like  to  have 
lived  when  Kant  produced  his  'Critique  of  Pure  Reason.'" — 
Hibbert  Journal. 

"Creative  Evolution  is  destined,  I  believe,  to  mark  an 
epoch  in  the  history  of  modern  thought.  The  work  has  its 
root  in  modern  physical  science,  but  it  blooms  and  bears 
fruit  in  the  spirit  to  a  degree  quite  unprecedented.  .  .  . 
Bergson  is  a  new  star  in  the  intellectual  firmament  of  our 
day.  He  is  a  philosopher  upon  whom  the  spirits  of  both 
literature  and  science  have  descended.  In  his  great  work 
he  touches  the  materialism  of  science  to  finer  issues.  Prob- 
ably no  other  writer  of  our  time  has  possessed  in  the  same 
measure  the  three  gifts,  the  literary,  the  scientific,  and  the 
philosophical.  Bergson  is  a  kind  of  chastened  and  spirit- 
ualized Herbert  Spencer." — John  Burroughs  in  the  Atlantic 
Monthly. 

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